MYRIAD GENETICS INC (MYGN)

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations provides an overview of our business and 2024 financial highlights and describes principal factors affecting the results of our operations, financial condition and liquidity, as well as our critical accounting estimates that require significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

The discussion and analysis below includes year-to-year comparisons between the year ended December 31, 2024 and the year ended December 31, 2023. Discussions of comparisons between the year ended December 31, 2023 and the year ended December 31, 2022 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 28, 2024.

Unless otherwise noted, all of the financial information in this Annual Report on Form 10-K is consolidated financial information of the Company.

Overview

We are a leading molecular diagnostic testing and precision medicine company dedicated to advancing health and well-being for all. We develop and offer molecular tests that help assess the risk of developing disease or disease progression and guide treatment decisions across medical specialties where molecular insights can significantly improve patient care and lower health care costs. Our molecular tests provide insights that help people take control of their health and enable healthcare providers to better detect, treat, and prevent disease.

Personalize molecular data and digital and virtual consumer trends are converging to transform traditional models of care. We believe that engaging with providers and patients throughout their consumer or patient journey will better enable us to execute our strategies and fulfill our mission. We believe there are significant growth opportunities in addressing the pressing healthcare needs of patient populations through innovative molecular diagnostic testing and precision medicine solutions and services. Our focus is on innovation and growth in three key areas where we have specialized products, capabilities, and expertise: Oncology, Women's Health, and Pharmacogenomics.

Our long-term growth strategy is built on investments in science and innovation, technology-enabled operations, an enhanced customer experience, strong commercial execution, and scalable operations. To drive continued growth, we plan to accelerate electronic medical records (EMR) integrations, expand our sales channels, including into large health systems, cross sell our portfolio of testing products to providers, enhance our testing products within medical guidelines, demonstrate our clinical differentiation and value compared to the standard of care, and optimize our revenue cycle processes. For example, in June 2024, we launched the Universal Plus Panel to our Foresight Carrier Screen Test, which is an expanded carrier screening test. We also continue to invest in clinical evidence development to support the growth of our existing products and launch of new products, such as FirstGene, Precise Liquid, and Precise molecular residual disease (MRD) which we expect will help us continue to grow. We intend to continue to develop and enhance our products and services to support growth, improve patient and provider experience, and reach more patients of all backgrounds. In addition, by investing in technology-enabled commercial tools, new laboratory facilities, advanced automation, and standardized processes and technology, we believe we will be able to reduce complexity and cost, while enhancing our ability to scale and grow. For example, in early 2025, we plan to complete the transition of all of our laboratory activities to our next generation laboratory facilities, which we believe will improve the efficiency of our operations. We are committed to making molecular testing accessible and actionable for patients and providers while driving long-term growth and profitability.

Our consolidated revenues consist primarily of sales of genetic tests through our wholly-owned subsidiaries. During the year ended December 31, 2024, we reported total revenue of $837.6 million, a net loss of $127.3 million, and basic and diluted loss per share of $1.41.

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During the fourth quarter of 2024, UnitedHealthcare updated its medical policy for pharmacogenetic testing to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test, under its commercial and individual exchange benefit plans and certain managed Medicaid plans. The change took effect for commercial and individual exchange benefit plans on January 1, 2025, and is expected to take effect for impacted managed Medicaid plans during the first half of 2025. We anticipate that the change in UnitedHealthcare coverage will negatively impact our revenue, profitability, and cash flow in 2025 and thereafter. While we intend to continue our engagement with UnitedHealthcare regarding its decision to change its GeneSight coverage policy, there is no guarantee that our efforts will be successful or that our GeneSight test will be covered by UnitedHealthcare or other payers in the future. For additional information regarding the impact of UnitedHealthcare's change on goodwill in our Pharmacogenomics reporting unit and our business, please refer to Critical Accounting Estimates below and the risk factors "If the government and other third-party payors fail to provide coverage and adequate payment for our existing and future tests, if any, our revenue and prospects for profitability will be harmed" and "Impairment in the value of our goodwill or other intangible assets could have a material adverse effect on our operating results and financial condition" included in Part I, Item 1A, of this Annual Report on Form 10-K.

Business Updates and Financial Highlights

During the year ended December 31, 2024, our significant business updates and financial highlights include the following:

•Revenue growth of 11% year-over-year, driven by 23% growth in Pharmacogenomics, 17% growth in Prenatal and 11% growth in Hereditary Cancer.

•Ranked among Best Large Workplaces in Health Care by Fortune and achieved a Great Place to Work® Certification for 2024.

•In February 2024, we acquired select assets from Intermountain Healthcare's Intermountain Precision Genomics (IPG) laboratory business, including the Precise Tumor test and the Precise Liquid test. IPG's laboratory operations were successfully integrated into our west Salt Lake City facility during the fourth quarter of 2024.

•In May 2024, we announced the reorganization of our International operations, which included the sale of our EndoPredict business. We have licensed the rights to continue to produce and sell EndoPredict as a laboratory developed test in the United States.

•Announced a series of ongoing research collaborations to study the use of MRD testing in breast cancer using our Precise MRD test. These research collaborations involve researchers at The University of Texas MD Anderson Cancer Center, the University of Rochester Medical Center, the National Cancer Center Hospital East in Japan, and a study partnership with Aptitude Health.

•Announced the USPTO issued multiple new patents that further advance our ability to bring our tumor-informed, high-definition, MRD assay, Precise MRD, to market.

•Announced a collaboration with Flatiron Health, a leading health technology company dedicated to point of care solutions in oncology. This collaboration allows physicians to order our MyRisk Hereditary Cancer Test and view the results of the test directly in Flatiron’s cloud-based EMR platform, OncoEMR.

•Announced an agreement with Lumea Inc. to integrate our Prolaris and MyRisk tests into Lumea's digital pathology platform in order to streamline the ordering and delivery of the tests.

•Announced the appointment of Mark S. Davis to our Board of Directors, effective in December 2024, expanding the Board of Directors from eight to nine members. Mr. Davis was also appointed to the Audit and Finance Committee.

On February 24, 2025, Paul J. Diaz, our President and Chief Executive Officer, announced that he will step down from those positions, and resign from our Board of Directors effective April 30, 2025, after which Mr. Diaz will continue to serve as a consultant for another year. Having engaged in a robust succession planning process, our Board of Directors appointed Samraat S. Raha, our current Chief Operating Officer, to succeed Mr. Diaz as our President and Chief Executive Officer and a member of our Board of Directors effective April 30, 2025. On February 24, 2025, our Board of Directors also appointed Mark S. Verratti, our current Chief Commercial Officer, as our Chief Operating Officer as of April 30, 2025 to succeed Mr. Raha in this position.

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Seasonality

We have historically experienced seasonality in our testing business. The quarters ending March 31 and September 30 are typically weaker due to the annual reset of patient deductibles in the beginning of each calendar year and vacation schedules in the summer. The quarter ending December 31 is typically stronger due to increased demand as patients meet their deductibles throughout the year; however, due to various factors, including disruptions in workflows arising from EMR integrations, volumes were less than expected for the quarter ended December 31, 2024. Seasonal patterns were disrupted in previous years as a result of the COVID pandemic and certain other factors, but we believe pre-COVID seasonality impacted 2024, particularly in the third quarter. Additionally, operating results for the twelve months ended December 31, 2024 may not necessarily be indicative of results to be expected for any year.

Components of Consolidated Operations

Revenue. Our tests are designed to analyze genes and their expression levels to assess an individual’s risk for developing disease, determine a patient’s likelihood of responding to a particular drug, assess a patient’s risk of disease progression, identify factors which could lead to serious conditions in pregnancy, or provide other prenatal insights. Revenue is recognized when the test results have been released to the healthcare provider and/or patient.

Expenses. Personnel-related costs for each category of costs and expenses include salaries, bonuses, employee benefit costs, employer payroll taxes, and stock-based compensation.

Cost of Revenue. Cost of revenue consists primarily of costs related to laboratory supplies, personnel-related costs, and overhead costs.

General and Administrative Expense. General and administrative expenses include executive management, billing and collections, finance and accounting, information technology, legal, and human resources. These expenses include personnel-related costs and third-party costs for items such as audit fees, legal expenses, consulting costs, and information technology services.

Sales and Marketing Expense. Sales and marketing expenses include costs associated with growing our business and providing customer service. The expenses consist primarily of personnel-related costs and third-party costs for items such as advertising, and trade shows.

Research and Development Expense. Research and development expenses consist primarily of personnel-related costs and laboratory supplies, which includes costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of our current test offerings and costs incurred in the discovery, development, and validation of our pipeline of test candidates.

Legal Settlements. Legal settlements related to litigation, including the reversal of a previously expected contingent settlement payment. For more information, see Note 12–Commitments and Contingencies in the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K.

Goodwill and Long-Lived Asset Impairment Charges. Goodwill and long-lived asset impairment charges include the impairment loss recognized on our goodwill or long-lived assets, including impairments recognized on intangible assets and right-of-use (ROU) lease assets.

Other Income (Expense). Other income (expense) includes interest income earned on our cash, cash equivalents, and restricted cash held in short-term interest-bearing accounts; interest expense associated with our debt and amortization of deferred financing costs and original issue discount costs; gains or losses on the sale of assets or businesses; and foreign currency gains and losses, realized gain or loss on marketable securities, and other nonrecurring income and expenses.

Income Tax Expense (Benefit). Income tax expense (benefit) consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation allowance.

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Results of Operations

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Revenue

The following table summarizes year-over-year revenue changes in our core product categories:

The following table summarizes testing volume changes in our core product categories:

Revenue for the year ended December 31, 2024 increased $84.4 million compared to the prior year due to an increase in the average revenue per test primarily due to changes in contracted price and operational improvements as well as an increase in testing volume across the majority of our products. Additionally, for the year ended December 31, 2024, we recorded $18.5 million of revenue as a change of estimate related to tests delivered in prior periods as compared to the year ended December 31, 2023, in which we recorded $7.2 million in revenue as a change of estimate related to tests delivered in prior periods. Additionally, for the year ended December 31, 2024, we recognized $3.0 million in revenue due to a retroactive coverage change by a payor for one of our prenatal products.

Hereditary Cancer revenues increased $36.7 million due to a 6% increase in the average revenue per test and a 5% increase in testing volume. Pharmacogenomics revenue increased $31.7 million compared to the prior year due primarily to an 11% increase in the average revenue per test, partially due to change in estimated revenue per test related to prior periods, and to a 10% increase in testing volume. We expect that Pharmacogenomics revenues in 2025 and thereafter will be negatively impacted by UnitedHealthcare's recent change in GeneSight test coverage under its commercial and individual exchange plans and certain managed Medicaid benefit plans. Prenatal revenues increased $25.8 million due primarily to a 10% increase in the average revenue per test and a 7% increase in testing volume. Tumor Profiling revenues decreased $9.8 million, primarily driven by declines in volume from MyChoice CDx studies in the current year compared to the prior year period.

Cost of Sales

Cost of revenue for the year ended December 31, 2024 increased $16.0 million compared to the prior year due primarily to an increase in testing volumes in Pharmacogenomics, Prenatal and Hereditary Cancer.

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Research and Development Expense

Research and development expense for the year ended December 31, 2024 increased by $24.7 million compared to the prior year primarily due to additional investments in new products and features including expanded screening for our existing Prenatal products and advancement in the development of our MRD test. We incurred approximately $11.2 million of additional compensation costs in 2024 than compared to the prior year due to an increase in the average compensation expense per employee and an $8.5 million increase in laboratory expenses.

Sales and Marketing Expense

Sales and marketing expense decreased $5.1 million for the year ended December 31, 2024 compared to the prior year primarily due to a decrease in compensation expense from a revised commission structure and a decrease in expense from sales events.

General and Administrative Expense

General and administrative expense decreased by $7.8 million for the year ended December 31, 2024 compared to the prior year primarily due to a $14.8 million decrease in expenses associated with our real estate optimization strategy, including a decrease in depreciation expense, facility costs, and expense associated with a lease termination in the prior year. These decreases were partially offset by a $5.3 million increase in compensation expense.

Legal Settlements

Legal settlements decreased by $134.1 million for the year ended December 31, 2024 compared to the prior year. In the prior year, we incurred $112.8 million for legal settlements, including $77.5 million related to the securities class action settlement and $34.0 million in connection with the Ravgen settlement. As part of the Ravgen settlement, we agreed to pay Ravgen $21.3 million if it successfully concluded in its favor all of Ravgen's litigations and patent reexaminations pending at the time of the settlement agreement. As of the effective date of the settlement in 2023, we determined that the contingent payment was probable and estimable. In the year ended December 31, 2024, based on updated information, we determined that the payment is no longer probable and reversed the expense related to the contingent payment.

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Goodwill and Long-lived Asset Impairment Charges

Goodwill and long-lived asset impairment charges for the year ended December 31, 2024 included $43.0 million of expense for the impairment of the developed technology intangible asset for our GeneSight test and $12.4 million of losses in connection with the sale of our EndoPredict business. There were no corresponding impairment charges in the prior year.

Other Income (Expense)

Other expense, net decreased $4.8 million for the year ended December 31, 2024 compared to the prior year primarily due to a $2.2 million gain recognized on the February 2024 acquisition of Precise assets and laboratory from Intermountain Health and a $1.5 million loss on the sale of investment securities recognized in the prior year.

Income Tax Expense

Our tax rate is the product of a U.S. federal statutory rate of 21.0% and a blended state statutory tax rate of approximately 3.3%. Certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period.

Income tax expense for the year ended December 31, 2024 was $3.8 million and our effective tax rate was (3.1)%. Income tax expense for the year ended December 31, 2023 was $1.1 million and our effective tax rate was (0.4)%. For the year ended December 31, 2024 and 2023, our recognized effective tax rate differs from the U.S. federal statutory rate primarily due to the recognition of valuation allowances.

Liquidity and Capital Resources

Our primary sources of liquidity are our cash and cash equivalents, our expected cash flows from operations, and, in certain circumstances as discussed below, amounts available for borrowing under our ABL Facility. As of December 31, 2024, we had cash and cash equivalents of $102.4 million and our availability under the ABL Facility was $56.0 million. Our capital deployment strategy focuses on use of resources in the key areas of research and development, technology, and acquisitions. We believe that investing organically through research and development and new product development or acquisitively to support our business strategy provides the best return on invested capital.

Our ABL Facility has a total maximum principal commitment of $115.0 million. The ABL Facility requires that we and our subsidiaries guaranteeing the indebtedness, on a consolidated basis, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 if availability under the ABL Facility is less than the greater of (a) $10.6 million and (b) 12.5% of the lesser of the maximum commitment amount and the borrowing base. As of December 31, 2024, we had $40.5 million outstanding under the ABL Facility.

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We believe that our existing capital resources will be sufficient to meet our projected operating requirements for at least the next 12 months. Our available capital resources, however, may be consumed more rapidly than currently expected, or may be insufficient for our business needs for many reasons, including as a result of our operational cash needs, capital expenditures, and litigation related costs not covered by, or above the limits set forth in, our insurance. In addition, we are subject to covenants under our ABL Facility which could limit our ability to incur additional indebtedness or impact our ability to pursue other financing. If we do not generate sufficient cash from operations, if our capital resources are consumed more rapidly than expected, or if we no longer have access to additional funds under our ABL Facility and we are unable to secure additional funds on acceptable terms, or at all, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations; or delay development of our tests in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals could be adversely affected.

From time to time, we enter into purchase commitments or other agreements that may materially impact our liquidity position in future periods. In April 2024, we entered into an amendment of our lease in west Salt Lake City, Utah to include approximately 63,000 additional square feet. The amendment has a term of 12 years and is expected to commence in fiscal year 2026 with future rent payments totaling approximately $18.2 million. Future rent payments remaining under the lease and the amendment total $94.3 million payable over the next 14 years.

In December 2024, we entered into an agreement to purchase information technology between January 2025 through December 2027, with minimum total commitment of $10.5 million over that time period.

Third-party payors, including state and federal health care programs such as Medicare, managed care organizations, and other private health insurers, are increasingly attempting to contain health care costs by limiting or denying coverage for certain tests and reducing reimbursement rates for both new and existing tests. We have experienced and may continue to experience coverage limitations or denials for many of our products. For example, UnitedHealthcare updated its medical policies for pharmacogenetic testing to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test, under its commercial and individual exchange benefit plans and certain managed Medicaid benefit plans, effective during the first half of 2025. For the year ended December 31, 2024, we recognized approximately $45.0 million of revenue for GeneSight testing from UnitedHealthcare, consisting of approximately $40.0 million for UnitedHealthcare commercial and approximately $5.0 million for impacted UnitedHealthcare managed Medicaid plans. We anticipate that the change in UnitedHealthcare coverage will negatively impact our revenue, profitability, and cash flow in 2025 and thereafter.

The following table represents the balances of cash, cash equivalents and marketable investment securities as of the dates set forth in the table below:

The decrease in cash, cash equivalents and marketable investment securities as of December 31, 2024 as compared to December 31, 2023 was primarily driven by $8.7 million in cash used by operations, $19.0 million in cash used for capital expenditures, $10.7 million in cash used for the capitalization of internal-use software, and $7.5 million in cash used for the payment of withholding tax for the issuance of common stock, net of proceeds from the issuance of common stock. The decrease in cash was partially offset by $8.8 million in cash received from the sale of our EndoPredict business. The following table represents the Consolidated Cash Flow Statement for the periods presented:

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Cash Flows from Operating Activities

We used $102.2 million less of cash for operating activities for the twelve months ended December 31, 2024 compared to the prior year. Cash used for operating activities for the year ended December 31, 2023 included $82.8 million of payments for legal settlements. In addition, our core operations have improved in the current year driven by an 11% increase in revenue and a 7% decrease in expenses as a percentage of revenue, excluding non-cash expenses for goodwill and long-lived asset impairment charges and accrued legal settlements. In the year ended December 31, 2023, we received $16.3 million in tenant improvement allowance reimbursements that did not reoccur for the year ended December 31, 2024.

Cash Flows from Investing Activities

The increase in cash flows used in investing activities for the twelve months ended December 31, 2024 compared to the cash flows provided by investing activities in the same period in the prior year was primarily due to the $96.2 million decrease in cash flows from maturities and sales of marketable investment securities compared to the prior year, partially offset by a $44.2 million decrease in capital expenditures in the current period in connection with the completion of the build-out of new facilities in the prior year and the $8.8 million received from the sale of our EndoPredict business in 2024.

Cash Flows from Financing Activities

The increase in cash flows used in financing activities for the twelve months ended December 31, 2024 compared to cash flows provided by financing activities in the same period in the prior year was primarily due to proceeds of $117.6 million from the underwritten public offering and the initial borrowing on our line of credit of $40 million that occurred in the twelve months ended December 31, 2023, which did not reoccur during the twelve months ended December 31, 2024.

Effects of Inflation

While inflation returned to more moderate levels in 2024, inflation has had, and may continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to generate sales and produce testing results, and costs of laboratory supplies. Inflationary costs have previously impacted our profitability and may continue to adversely affect our business, financial condition and results of operations. In addition, increased inflation has had, and may continue to have, an effect on interest rates. An increase in interest rates in the future may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, additional funding.

Critical Accounting Estimates

Critical accounting estimates are those policies which are both important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting estimates are as follows:

•revenue recognition;

•intangible assets;

•goodwill; and

•income taxes.

Revenue Recognition.  Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to a customer. We exclude sales, use, value-added, and other taxes we collect on behalf of third parties from revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer.

We generate revenue primarily by performing genetic testing. Control is transferred, and revenue is recognized, once test results are released to the healthcare provider and/or patient. Revenue from the sale of tests is recorded at the estimated transaction price. We have the right to bill our customers upon the completion of performance obligations and thus do not record contract assets.

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Significant judgments are required in determining the transaction price in connection with satisfying performance obligations under the revenue standard. In determining the transaction price, we include an estimate of the expected amount of consideration to be received. We apply this method consistently for similar contracts when estimating the effect of any uncertainty on an amount of variable consideration to which it will be entitled. An estimate of transaction price does not include any estimated amount of variable consideration that is constrained. In addition, we consider all the information (historical, current, and forecast) that is reasonably available to identify possible consideration amounts. In determining the expected value, we consider the probability of the variable consideration for each possible scenario. We have significant experience with historical discount patterns and we use this experience to estimate transaction prices.

The estimate of revenue is affected by, among other factors, assumptions for changes in payor mix, payor collections, current customer contractual requirements, experience with collections from third-party payors, and changes in medical policies. When assessing the total consideration for insurance carriers and patients, revenue is further constrained for estimated refunds. We reserve certain amounts in accrued liabilities in the Consolidated Balance Sheets in anticipation of requests for refunds of payments made previously by insurance carriers, which are accounted for as reductions in revenue in the Consolidated Statements of Operations and Comprehensive Loss.

Cash collections for certain tests delivered may differ from rates estimated due to changes in the estimated transaction price for contractual adjustments, obtaining updated information from payors and patients that was unknown at the time the performance obligation was met, settlements with third-party payors, or as a result of third-party payors disputing our bills or denying payment for tests that we have performed, among other reasons. As a result of this new information, we update our estimate of the amounts to be recognized for previously delivered tests. For example, during the year ended December 31, 2024, we recognized $18.5 million in revenue, or 2% of revenue, in which the performance obligation of delivering the test results was met in prior periods.

Intangible Assets. We review our intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Intangible assets are initially recorded at their acquisition date fair value and are subsequently amortized over their useful lives.

During the fourth quarter of 2024, UnitedHealthcare announced that it would no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test, under its commercial, individual exchange, and certain managed Medicaid plans, effective during the first half of 2025, which caused us to perform a recoverability test for the Pharmacogenomics asset group during the fourth quarter of 2024. We performed the recoverability test by comparing the carrying value of the asset group to its estimated undiscounted future cash flows. The analysis indicated that the carrying value exceeded the recoverable amount, requiring us to determine the fair value of the asset group. The fair value of the developed technology was determined using a discounted cash flow model. The approach considered projected revenue, including the impact of the change in coverage by UnitedHealthcare, profitability associated with the developed technology, discount rates reflective of the risk-adjusted cost of capital of 10.0% and the expected remaining useful life of the developed technology. As the carrying value for the developed technology asset exceeded the relative fair value, we recognized an impairment charge of $43.0 million during the year ended December 31, 2024, related to the developed technology intangible asset, which is included in "Goodwill and long-lived asset impairment charges" in the Consolidated Statements of Operations. The impairment reduced the carrying value of the developed technology to its estimated fair value of $89.0 million as of the impairment date.

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Goodwill.  We test goodwill for impairment by reporting unit on an annual basis and in the interim if events and circumstances indicate that goodwill may be impaired. The events and circumstances that are considered include business climate and market conditions, legal factors, operating performance indicators and competition. Impairment of goodwill is evaluated on a qualitative basis before calculating the fair value of the reporting unit. If the qualitative assessment suggests that impairment is more likely than not, a quantitative impairment analysis is performed. The quantitative analysis involves comparison of the fair value of a reporting unit with its carrying amount. The valuation of a reporting unit requires judgment in estimating future cash flows, discount rates, residual growth rates and other factors. In making these judgments, we evaluate the financial health of our business, including such factors as industry performance, market saturation and opportunity, changes in technology and operating cash flows, and other relevant entity-specific events. Goodwill impairment testing requires us to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, and other financial assumptions, which are based upon our long-term plan. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both debt and equity, including a risk premium. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. While there are always changes in assumptions to reflect changing business and market conditions, our overall methodology used has remained unchanged. Changes in our forecasts or decreases in the value of our common stock could cause book value of reporting units to exceed their fair values. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. If an event occurs that would cause a revision to the estimates and assumptions used in analyzing the value of the goodwill, the revision could result in a non-cash impairment charge that could have a material impact on the financial results.

As of December 31, 2024, we have recorded goodwill of $286.3 million on our Consolidated Balance Sheets. This goodwill is attributable to the Pharmacogenomics, International, and Women's Health reporting units. As noted above, UnitedHealthcare announced that it would no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test. As a result, the Company performed a quantitative impairment review of goodwill for the Pharmacogenomics reporting unit during the fourth quarter of 2024. The Company also elected to perform a quantitative impairment review of goodwill for its Women's Health and International reporting units.

We measured the fair value of the Pharmacogenomics reporting unit utilizing the market approach and the discounted cash flow method under the income approach. The income approach considered projected revenue, taking into account the impact of the change in GeneSight coverage by UnitedHealthcare, and the projected profitability of the reporting unit and a discount rate reflective of the risk-adjusted cost of capital of 10.0%. The resulting fair value of the Pharmacogenomics reporting unit exceeded its carrying value by 43.6%.

We measured the fair value of the International reporting unit utilizing the market approach and the discounted cash flow method under the income approach. The income approach considered management’s business plans and projections as the basis for expected cash flows and a discount rate reflective of the risk-adjusted cost of capital of 10.5%. The resulting fair value of the International reporting unit exceeded its carrying value by 234.0%.

We measured the fair value of the Women's Health reporting unit utilizing the market approach and the discounted cash flow method under the income approach. The income approach considered projected revenue and profitability associated with reporting unit and a discount rate reflective of the risk-adjusted cost of capital of 10.5%. The resulting fair value of the Women's Health reporting unit exceeded its carrying value by 82.0%.

Additionally, we corroborated the reasonableness of the estimated reporting unit fair values by reconciling them to our enterprise value and market capitalization.

Income Taxes.  Our income tax provision is based on income before taxes and is computed using the liability method in accordance with Accounting Standards Codification 740 – Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates projected to be in effect for the year in which the differences are expected to reverse. Significant estimates are required in determining our provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, or the expected results from any future tax examinations. Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes. Those factors include, but are not limited to, changes in tax laws, regulations and/or rates, the results of any future tax examinations, changing interpretations of existing tax laws or regulations, changes in estimates of prior years’ items, past levels of research and development spending, acquisitions, changes in our corporate structure, and changes in overall levels of income before taxes all of which may result in periodic revisions to our provision for income taxes.

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Developing our provision for income taxes, including our effective tax rate and analysis of potential uncertain tax positions, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowance we deem necessary to offset deferred tax assets. Our judgment and tax strategies are subject to audit by various taxing authorities. While we believe we have provided adequately for our uncertain income tax positions in our Consolidated Financial Statements, an adverse determination by these taxing authorities could have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Interest and penalties on income tax items are included as a component of overall income tax expense.

Recent Accounting Pronouncements

See Note 1–Organization and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements.

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of Management's Discussion and Analysis discusses year-to-year comparisons between the year ended December 31, 2023 and the year ended December 31, 2022. Discussions of comparisons between the year ended December 31, 2022 and the year ended December 31, 2021 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 1, 2023. The following discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. Unless otherwise noted, all of the financial information in this Annual Report on Form 10-K is consolidated financial information of the Company.

Overview

We are a leading genetic testing and precision medicine company dedicated to advancing health and well-being for all. We develop and offer genetic tests that help assess the risk of developing disease or disease progression and guide treatment decisions across medical specialties where genetic insights can significantly improve patient care and lower health care costs. Our genetic tests provide insights that help people take control of their health and enable healthcare providers to better detect, treat and prevent disease.

Personalized genetic data, digital, and virtual consumer trends are converging to change traditional models of care. We believe significant growth opportunities exist to help patient populations with pressing health care needs through innovative genetic and precision medicine solutions and services. Our focus is on innovation and growth in three key areas where we have specialized products, capabilities, and expertise: Oncology, Women's Health, and Pharmacogenomics. The pillars of our long-term growth strategy are founded on investments in science and innovation, technology-enabled operations, an elevated customer experience, strong commercial execution, and scalable operations. We believe our path to continued growth is driven by articulating our clinical differentiation, raising awareness with patients who we believe would benefit from our testing products, and innovation that improves clinical outcomes, ease of use, and access. By investing in tech-enabled commercial tools, new laboratory facilities, advanced automation, and standardized processes and technology, we believe we will be able to reduce complexity and cost while enhancing our ability to scale and grow. We plan to expand some of our current products, such as our Foresight Universal Plus Test, which is an expanded carrier screening test that we anticipate launching in the second half of 2024. We also plan to launch new products, such as FirstGene, Precise Liquid, and Precise minimal residual disease, which we expect will help accelerate our growth. We intend to develop and enhance our products to support growth, improve patient and provider experience, and reach more patients of all backgrounds. We are committed to disciplined management of a key set of initiatives to fulfill our mission and drive long-term growth and profitability.

Our consolidated revenues consist primarily of sales of tests through our wholly-owned subsidiaries. During the year ended December 31, 2023, we reported total revenues of $753.2 million, net loss attributable to our stockholders of $263.3 million and basic and diluted loss per share of $3.18.

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Business Updates

During the year ended December 31, 2023, our significant business updates and financial highlights include the following:

•Testing volumes grew 35% year-over-year and 18% year-over-year excluding the contribution from our SneakPeek Early Gender DNA Test, driven by 24% growth in Pharmacogenomics, 17% growth in Hereditary Cancer, 15% growth in Prenatal, excluding the contribution from SneakPeek, and 2% growth in Tumor Profiling.

•Revenue growth of 11% year-over-year.

•Completed an underwritten public offering of our common stock in November 2023 in which we sold 7,441,176 shares of our common stock at a price of $17.00 per share, with proceeds of $117.6 million, net of offering expenses of $1.3 million and underwriting discounts.

•Achieved additional improvements amongst our tests and offerings, including an enhancement to the GeneSight test to personalize mental health medication treatment decisions based on smoking status, the addition of Folate Receptor Alpha test to Precise Oncology Solutions to expand treatment options for women living with ovarian cancer, the inclusion of breast density to MyRisk with RiskScore breast cancer risk treatment, and advancements in prostate cancer care with the addition of absolute risk reduction to Prolaris.

•Ranked among Best Large Workplaces in Health Care by Fortune and achieved a Great Place to Work® Certification for 2023.

•Entered into and announced partnerships and collaborations that we believe will provide additional value, insights, and opportunities, including (1) an expanded partnership with Illumina, Inc. to broaden access to, and availability of, oncology HRD testing in the United States, (2) a collaboration with Memorial Sloan Kettering Cancer Center to study the use of minimal residual disease testing in breast cancer, (3) a research collaboration with the University of Texas MD Anderson Cancer Center related to our minimal residual disease testing platform, (4) a collaboration with SimonMed® Imaging to launch a new hereditary cancer assessment program that combines diagnostic imaging, genetic risk assessment utilizing MyRisk with RiskScore and patient education, and (5) a partnership with Onsite Women's Health to help more women understand breast cancer risk.

Seasonality

We have historically experienced seasonality in our testing business. In the quarter ended March 31 we typically experience a decrease in volumes due to the annual reset of patient deductibles. Additionally, the volume of testing is typically negatively impacted by the summer season, which is generally reflected in the quarter ended September 30. Conversely, the quarter ended December 31 is generally strong as we typically experience an increase in volumes from patients who have met their annual insurance deductible. In the fiscal year ended December 31, 2023, we did not experience seasonality to the same extent we have in prior years. For example, in the quarter ended September 30, 2023, we did not see the customary impact from the summer season as volumes decreased less than one percent in comparison to the quarter ended June 30, 2023. Historical patterns of seasonality may not continue in future years.

Components of Consolidated Operations

Revenue

Testing. Our tests are designed to analyze genes and their expression levels to assess an individual’s risk for developing disease, determine a patient’s likelihood of responding to a particular drug, assess a patient’s risk of disease progression, identify factors which could lead to serious conditions in pregnancy, or provide other prenatal insights. Revenue is recognized when the communication of test results has occurred.

Other. On July 1, 2021, we divested Myriad RBM, Inc., which provided biomarker discovery, pharmaceutical and clinical services to the pharmaceutical, biotechnology, and medical research industries utilizing multiplexed immunoassay technology. As a result, we ceased providing pharmaceutical and clinical services as of that date and no longer generate revenue from these services. Revenue for these services was recognized at the completion of the pharmaceutical and clinical services.

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Costs and Expenses

Expenses. Personnel-related costs for each category of Costs and expenses include salaries, bonuses, employee benefit costs, employer payroll taxes, and stock-based compensation.

Cost of Testing Revenue. Cost of testing revenue consists primarily of costs related to laboratory supplies, personnel-related costs, and overhead costs.

Cost of Other Revenue. Cost of other revenue consists primarily of costs related to laboratory supplies and personnel-related costs.

Research and Development Expense. Research and development expenses consist primarily of personnel-related costs and laboratory supplies, which includes costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of our current test offerings and costs incurred in the discovery, development and validation of our pipeline of test candidates.

Selling, General, and Administrative Expense. Selling, general, and administrative expenses include costs associated with managing and growing our businesses. Selling, general, and administrative expenses consist primarily of personnel-related costs and third-party costs for sales, marketing, customer service, billing and collection, legal, finance and accounting, information technology, and human resources.

Legal Settlements. Legal settlements related to litigation. For more information, see "Note 12–Commitments and Contingencies in the Notes to Consolidated Financial Statements."

Goodwill and Long-Lived Asset Impairment Charges. Goodwill and long-lived asset impairment charges include the impairment loss recognized on our goodwill or long-lived assets, including impairments recognized on intangible assets and right-of-use (ROU) lease assets.

Other Income (Expense). Other income (expense) includes interest income earned on our cash, cash equivalents, and restricted cash held in short-term interest-bearing accounts; interest expense associated with our debt and amortization of deferred financing costs and original issue discount costs; gains or losses on the sale of assets or businesses; and foreign currency gains and losses, realized gain or loss on marketable securities, and other nonrecurring income and expenses.

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Results of Operations

Revenue

Test revenues for the year ended December 31, 2023 increased $74.8 million compared to the prior year due to an increase in testing volume across the majority of our products, partially offset by a decline in the average revenue per test. For the year ended December 31, 2023, we recorded $7.2 million of revenue as a result of a change of estimate related to previously delivered tests, as compared to the year ended December 31, 2022, in which we recorded $22.1 million of revenue as a result of a change of estimate related to previously delivered tests.

Prenatal revenues increased $34.9 million due primarily to a 15% increase in volumes excluding SneakPeek, and additional revenue from SneakPeek of $17.8 million. As the Gateway acquisition occurred on November 1, 2022, there were no corresponding SneakPeek revenues for the majority of the prior year. Hereditary Cancer revenues increased $22.3 million due to a 17% increase in testing volume, partially offset by a 8% decrease in the average revenue per test. Revenue from Pharmacogenomics increased $10.9 million compared to the prior year due primarily to a 24% increase in volume, partially offset by a 12% decrease in the average revenue per test. Tumor Profiling revenues increased $7.0 million primarily due to an increase of $12.8 million in revenue for Prolaris, partially offset by a $7.3 million decrease in revenue from MyChoice CDx. These changes were driven by an increase in testing volume of 11% and an increase in average revenue per test of 8% for Prolaris and a 19% decrease in volume for MyChoice CDx, respectively.

Cost of Sales

Cost of testing revenue for the year ended December 31, 2023 increased $34.2 million compared to the prior year due primarily to an increase in volumes, with the most significant increases in Hereditary Cancer and Pharmacogenomics. In addition, cost of testing revenue increased $10.2 million as compared to the prior year due to the acquisition of Gateway and the associated SneakPeek product. The cost of testing revenue as a percentage of revenue increased from 29.8% to 31.4% during the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was due in part to the decline in revenue per unit exceeding the decline in the cost per unit.

Research and Development Expense

Research and development expense for the year ended December 31, 2023 increased by $3.3 million compared to the prior year primarily due to an increase in the average compensation expense per employee and clinical trial expenses, partially offset by a decrease in information technology related costs and certain laboratory expenses, such as a decrease in the consumption of reagents, as compared to the prior year.

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Selling, General, and Administrative Expense

Selling, general, and administrative expense increased by $58.2 million for the year ended December 31, 2023 compared to the prior year due primarily to a $38.8 million increase in compensation costs driven by increases in the average cost per employee, commission expense due to increases in testing volume, and bonus expense, a $16.2 million increase in general legal expenses due in part to the previous year's legal expenses being offset by the receipt of $12.0 million from insurers in the prior year to offset certain legal expenses, and a $5.7 million increase in facility costs, partially offset by a $16.4 million decrease in consulting costs in the current year. In addition, in connection with the decision to cease the use of our previous corporate headquarters, we recognized a $7.7 million loss on termination of the lease and $5.7 million of accelerated depreciation for certain leasehold improvements and equipment.

Legal Settlements

Legal settlements increased for the year ended December 31, 2023 compared to the prior year due to $112.8 million accruals related to legal settlements, including $77.5 million related to the class action settlement and $34.0 million in connection with the Ravgen settlement. For more information, see "Note 12–Commitments and Contingencies in the Notes to Consolidated Financial Statements." There were no corresponding legal settlement amounts incurred in the prior year.

Goodwill and Long-lived Asset Impairment Charges

Goodwill and long-lived asset impairment charges decreased for the year ended December 31, 2023 compared to the prior year primarily due to the Company recognizing a $13.0 million impairment to ROU assets and a $3.9 million impairment to the related leasehold improvements in the prior year as a result of our decision to no longer use certain leased facilities in order to consolidate space. There were no corresponding impairment charges in the current year.

Other Income (Expense)

Other income (expense) decreased for the year ended December 31, 2023 compared to the prior year due primarily to a foreign currency loss of $3.4 million and a $1.5 million loss on the sale of investment securities in the current year. Losses on foreign currency and sales of investment securities were insignificant in the prior year.

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Income Tax Expense (Benefit)

Our tax rate is the product of a U.S. federal effective rate of 21.0% and a blended state income tax rate of approximately 3.4%. Certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period.

Income tax expense for the year ended December 31, 2023 was $1.1 million, and our effective tax rate was 0.4%. For the year ended December 31, 2023, our effective tax rate differs from the U.S. federal statutory rate primarily due to the change in valuation allowance. For the year ended December 31, 2022, our effective tax rate differs from the U.S. federal statutory rate primarily due to disallowed executive compensation expenses, stock compensation, change in valuation allowance, and research and development credits.

Liquidity and Capital Resources

Our primary sources of liquidity are our cash, cash equivalents and marketable investment securities, our cash flows from operations, and, in certain circumstances as discussed below, amounts available for borrowing under our ABL Facility. As of December 31, 2023, we had cash, cash equivalents and marketable investment securities of $140.9 million and availability under the ABL Facility was $40.7 million, subject to the minimum availability requirement under the ABL Facility. In 2023, our sources of liquidity also included $117.6 million from an underwritten public offering of our common stock, as further discussed below. Our capital deployment strategy focuses on use of resources in the key areas of research and development, technology and acquisitions. We believe that investing organically through research and development and new product development or acquisitively to support our business strategy provides the best return on invested capital.

Our ABL Facility has a total maximum principal commitment of $115.0 million. The ABL Facility requires that we and our subsidiaries guaranteeing the indebtedness, on a consolidated basis, maintain minimum liquidity of $60.0 million and minimum availability of $25.0 million at all times before achieving a fixed charge coverage ratio of 1.0 to 1.0 and thereafter, to maintain a fixed charge coverage ratio of 1.0 to 1.0 until achieving availability under the ABL Facility of greater of (a) $10.6 million and (b) 12.5% of the lesser of the maximum commitment amount and the borrowing base for a period of 30 consecutive days. As of December 31, 2023, we had $40.0 million outstanding under the ABL Facility and availability under the ABL Facility was $40.7 million, subject to the minimum availability requirement under the ABL Facility.

During November 2023, we completed an underwritten public offering of our common stock in which we sold 7,441,176 shares of our common stock at a price of $17.00 per share for proceeds of $117.6 million, net of offering expenses of $1.3 million and underwriting discounts. The proceeds from the offering were utilized to pay the remaining $57.5 million of the securities class action settlement, with the remainder being used for working capital and general corporate purposes.

We believe that our existing capital resources will be sufficient to meet our projected operating requirements for at least the next 12 months. Our available capital resources, however, may be consumed more rapidly than currently expected, or may be insufficient for our business needs for many reasons, including as a result of our operational cash needs, capital expenditures, and litigation related costs not covered by, or above the limits set forth in, our insurance. In addition, we are subject to covenants under our ABL Facility which could limit our ability to incur additional indebtedness or impact our ability to pursue other financing. If we do not generate sufficient cash from operations, if our capital resources are consumed more rapidly than expected, or if we no longer have access to additional funds under our ABL Facility and we are unable to secure additional funds on acceptable terms, or at all, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations; or delay development of our tests in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals could be adversely affected.

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From time to time, we enter into purchase commitments or other agreements that may materially impact our liquidity position in future periods. In February 2022, we entered into a non-cancelable operating lease for approximately 230,000 square feet in west Salt Lake City, Utah. The lease has a term of 15 years, which commenced in the fourth quarter of 2023. Total future rent payments under the lease are approximately $79.6 million. We also entered into a non-cancelable operating lease for approximately 63,000 square feet of leased space in South San Francisco, California. The lease has a term of 10 years and, along with rent payments, commenced in the second quarter of 2023. Total future rent payments under the lease are approximately $56.7 million.

Because of the technical nature of our business and our focus on science, research, and development, we are highly dependent upon our ability to attract and retain highly qualified and experienced management, scientific, and technical personnel. Loss of the services of or failure to recruit additional key management, scientific, and technical personnel and other qualified personnel who are necessary to operate our business would adversely affect our business, and it may have a material adverse effect on our business as a whole. Additionally, disruptions to our supply chain could cause shortages of critical materials required to conduct our business, which may have a material adverse effect on our business as a whole. In addition, inflation has had, and may continue to have, an impact on the costs we incur to attract and retain qualified personnel, costs to generate sales and produce testing results, and costs of laboratory supplies.

The following table represents the balances of cash, cash equivalents, and marketable investment securities as of December 31, 2023 and 2022:

The decrease in cash, cash equivalents, and marketable investment securities as of December 31, 2023 compared to December 31, 2022 was primarily driven by $110.9 million in cash used by operations, which included legal settlement payments of $82.8 million, as well as $63.2 million in cash used for capital expenditures, and $2.8 million in cash used for the payment of withholding tax in connection with the issuance of common stock, net of proceeds from the issuance of common stock, which were partially offset by $117.6 million in proceeds from our underwritten public offering of common stock in November 2023, net of offering expenses, and proceeds from the ABL Facility of $38.3 million in the current year. The decrease in marketable investment securities as of December 31, 2023 as compared to the prior year was primarily driven by sales of marketable investment securities to fund operations in the current year, with total proceeds from maturities and sales of marketable investment securities in the current year of $105.2 million.

The following table represents the condensed cash flow statement:

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Cash Flows from Operating Activities

The amount of cash flows used in operating activities was largely consistent for the years ended December 31, 2023 and December 31, 2022. For the year ended December 31, 2023, we paid approximately $32.8 million more in legal settlements compared to the prior year. This change was largely offset by an improvement in core operations driven by an increase in revenues due to the growth in volumes and a decrease in expenses as a percentage of revenue when excluding the legal settlement costs.

Cash Flows from Investing Activities

The increase in cash flows provided by investing activities for the year ended December 31, 2023 as compared to the prior year was primarily due to an $80.2 million increase in net proceeds from marketable investment securities in the current year and the acquisition of Gateway, net of cash acquired, for $57.2 million in the prior year, partially offset by a $28.0 million increase in capital expenditures and capitalization of internal-use software costs in the current period.

Cash Flows from Financing Activities

The increase in cash flows provided by financing activities as compared to the prior year was primarily due to proceeds from an underwritten public offering of common stock of $117.6 million, net of offering expenses and underwriting discounts, and net proceeds from the ABL Facility of $38.3 million in the current year.

Effects of Inflation

Inflation has had, and may continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to generate sales and produce testing results, and costs of laboratory supplies. Inflationary costs have impacted our profitability and may continue to adversely affect our business, financial condition and results of operations. In addition, increased inflation has had, and may continue to have, an effect on interest rates. Increased interest rates may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, additional funding.

Critical Accounting Estimates

Critical accounting estimates are those policies which are both important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting estimates are as follows:

•revenue recognition;

•goodwill; and

•income taxes.

Revenue Recognition.  Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to a customer. We exclude sales, use, value-added, and other taxes we collect on behalf of third parties from revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer.

We generate revenue primarily by performing genetic testing. We perform our obligation under a contract with a customer by processing those tests and communicating the test results to customers, in exchange for consideration from the customer. Revenue from the sale of tests is recorded at the estimated transaction price. We have determined that the communication of test results indicates transfer of control for revenue recognition purposes. We have the right to bill our customers upon the completion of performance obligations and thus do not record contract assets. Occasionally customers make payments prior to our performance of our contractual obligations. When this occurs, we record a contract liability as deferred revenue.

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Significant judgments are required in determining the transaction price in connection with satisfying performance obligations under the revenue standard. In determining the transaction price, we estimate the expected amount of consideration as revenue. We apply this method consistently for similar contracts when estimating the effect of any uncertainty on an amount of variable consideration to which we will be entitled. An estimate of transaction price does not include any estimated amount of variable consideration that is constrained. We consider all the information (historical, current, and forecast) that is reasonably available to identify possible consideration amounts. To determine our estimated transaction price, we apply the expected value method for sales where we have a large number of contracts with similar characteristics. We then consider the probability of the variable consideration for each possible scenario. We have significant experience with historical collection patterns and use this experience to estimate transaction prices.

The estimate of revenue is affected by assumptions in payor mix and in payor behavior such as changes in payor collections, current customer contractual requirements, and experience with ultimate collection from third-party payors. When assessing the total consideration for insurance carriers and patients, revenues are further constrained for estimated refunds. We reserve certain amounts in accrued liabilities in the Consolidated Balance Sheets in anticipation of request for refunds of payments made previously by insurance carriers, which are accounted for as reductions in revenues in the Consolidated Statements of Operations and Comprehensive Loss.

Cash collections for certain tests delivered may differ from rates estimated, primarily driven by changes in the estimated transaction price due to contractual adjustments, obtaining updated information from payors and patients that was unknown at the time the performance obligation was met and settlements with third-party payors. As a result of this new information, we update our estimate of the amounts to be recognized for previously delivered tests. During the year ended December 31, 2023, we recognized $7.2 million in revenue, which resulted in a $0.07 impact to loss per share for tests in which the performance obligation of delivering the test results was met in prior periods. The changes were primarily driven by changes in the estimated transaction price. During the year ended December 31, 2022, we recognized $22.1 million in revenue, which resulted in a $0.21 impact to loss per share for tests in which the performance obligation of delivering the test results was met in prior periods.

Goodwill.  We test goodwill for impairment on an annual basis and in the interim by reporting unit if events and circumstances indicate that goodwill may be impaired. The events and circumstances that are considered include business climate and market conditions, legal factors, operating performance indicators and competition. Impairment of goodwill is evaluated on a qualitative basis before calculating the fair value of the reporting unit. If the qualitative assessment suggests that impairment is more likely than not, a quantitative impairment analysis is performed. The quantitative analysis involves comparison of the fair value of a reporting unit with its carrying amount. The valuation of a reporting unit requires judgment in estimating future cash flows, discount rates, residual growth rates and other factors. In making these judgments, we evaluate the financial health of our business, including such factors as industry performance, market saturation and opportunity, changes in technology and operating cash flows, and other relevant entity-specific events. Goodwill impairment testing requires us to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, and other financial assumptions, which are based upon our long-term plan. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both debt and equity, including a risk premium. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. While there are always changes in assumptions to reflect changing business and market conditions, our overall methodology used has remained unchanged. Changes in our forecasts or decreases in the value of our common stock could cause book value of reporting units to exceed their fair values. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. If an event occurs that would cause a revision to the estimates and assumptions used in analyzing the value of the goodwill, the revision could result in a non-cash impairment charge that could have a material impact on the financial results.

As of December 31, 2023, we have recorded goodwill of $287.4 million on our Consolidated Balance Sheets. This goodwill is attributable to the Pharmacogenomics, Myriad International, Myriad Women's Health, and Gateway reporting units. We qualitatively evaluated our reporting units for impairment. The factors that are considered in the qualitative analysis include macroeconomic conditions, industry and market considerations, revenue growth rates, current and financial performance, other factors that would have a negative effect on earnings and cash flows, and other relevant entity-specific events and information. Significant judgment is required in assessing the weight of the qualitative factors. We noted no indicators of impairment during the year ended December 31, 2023.

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Income Taxes.  Our income tax provision is based on income before taxes and is computed using the liability method in accordance with ASC 740 – Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates projected to be in effect for the year in which the differences are expected to reverse. Significant estimates are required in determining our provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, or the expected results from any future tax examinations. Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes. Those factors include, but are not limited to, changes in tax laws, regulations and/or rates, the results of any future tax examinations, changing interpretations of existing tax laws or regulations, changes in estimates of prior years’ items, past levels of research and development spending, acquisitions, changes in our corporate structure, and changes in overall levels of income before taxes all of which may result in periodic revisions to our provision for income taxes.

Developing our provision for income taxes, including our effective tax rate and analysis of potential uncertain tax positions, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowance we deem necessary to offset deferred tax assets. Our judgment and tax strategies are subject to audit by various taxing authorities. While we believe we have provided adequately for our uncertain income tax positions in our consolidated financial statements, an adverse determination by these taxing authorities could have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Interest and penalties on income tax items are included as a component of overall income tax expense.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements.

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of Management's Discussion and Analysis discusses year-to-year comparisons between the year ended December 31, 2022 and the year ended December 31, 2021. Discussions of comparisons between the year ended December 31, 2021 and the year ended December 31, 2020 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 25, 2022. The following discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. Unless otherwise noted, all of the financial information in this Annual Report on Form 10-K is consolidated financial information for the Company.

Overview

We develop and offer genetic tests that help assess the risk of developing disease or disease progression and guide treatment decisions across medical specialties where genetic insights can significantly improve patient care and lower health care costs. Our mission is to advance health and well-being for all, empower individuals with vital insights and enable healthcare providers to better detect, treat and prevent disease.

Personalized genetic data, digital, and virtual consumer trends are converging to change traditional models of care. We believe significant growth opportunities exist to help patient populations with pressing health care needs through innovative solutions and services. Our focus is on organic growth, deployment of capital, including through opportunistic acquisitions, and the launch of new products. We are focusing our efforts in three key areas where we have specialized products, capabilities, and expertise: Oncology, Women's Health, and Mental Health. We believe our path to organic growth is driven by articulating our clinical differentiation, advancing a new commercial model in our Oncology and Women's Health businesses to reach a broader set of physicians and patients, raising awareness with patients who we believe would benefit from testing, and innovation that improves clinical outcomes, ease of use, and access. By investing in tech-enabled commercial tools, new lab facilities, and advanced automation, we believe we will be able to reduce complexity and cost. With a foundation of financial, commercial, operational and technological strength, we plan to launch new products and capabilities in 2023, such as our unified ordering portal, FirstGene, and, on a research use only basis, Precise MRD, which we expect will help accelerate our growth. We intend to develop and enhance our products to support growth, improve patient and provider experience, and reach more patients of all backgrounds. We are committed to disciplined management of a key set of initiatives to fulfill our mission and drive long-term growth and profitability.

Our consolidated revenues consist primarily of sales of tests through our wholly-owned subsidiaries.  During the year ended December 31, 2022, we reported total revenues of $678.4 million, net loss attributable to Myriad Genetics, Inc. stockholders of $112.0 million and basic and diluted loss per share of $1.39.

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Business Updates

During the year ended December 31, 2022, we took meaningful steps to fulfill our mission and execute our strategic transformation and growth plan. These steps included the following:

•the acquisition of Gateway Genomics, LLC (Gateway), a personal genomics company and developer of consumer genetic tests that gives families insight into their future children;

•the launch of Precise Oncology Solutions, a comprehensive offering designed to help oncologists determine effective and personalized treatment plans for individual patients;

•the appointment of several new leaders to our management team, including a new Chief Commercial Officer, Chief Operating Officer, Chief Scientific Officer, and Chief Marketing Officer, as part of our ongoing enhancement of our executive leadership team; and

•total revenue grew 6% year-over-year, excluding contributions from divested businesses. Pharmacogenomics volume growth continued to lead our portfolio, reporting 35% volume growth year-over-year, and hereditary cancer test volumes rebounded in the second half of the year, generating 10% volume growth in the second half of the year ended December 31, 2022 as compared to the second half of the year ended December 31, 2021.

Seasonality

We have historically experienced seasonality in our testing business. The quarter ended December 31st is generally strong as we typically experience an increase in volumes from patients who have met their annual insurance deductible. Conversely, in the quarter ended March 31st we typically experience a decrease in volumes due to the annual reset of patient deductibles. Additionally, the volume of testing is negatively impacted by the summer season, which is generally reflected in the quarter ended September 30th.

Components of Consolidated Operations

Revenue

Testing. Our tests are designed to analyze genes and their expression levels to assess an individual’s risk for developing disease, determine a patient’s likelihood of responding to a particular drug, assess a patient’s risk of disease progression, or identify factors which could lead to serious conditions in pregnancy. Revenue is recognized when the communication of test results has occurred.

Other. On July 1, 2021, we divested Myriad RBM, Inc., which provided pharmaceutical and clinical services. As a result, we ceased providing pharmaceutical and clinical services as of that date and no longer generate revenue from these services. Through Myriad RBM, Inc., we provided biomarker discovery, pharmaceutical and clinical services to the pharmaceutical, biotechnology, and medical research industries utilizing our multiplexed immunoassay technology. We also divested other clinical operations in February 2020. Revenue for these services was recognized at the completion of the pharmaceutical and clinical services.

Costs and Expenses

Expenses. Personnel-related costs for each category of Costs and Expenses include salaries, bonuses, employee benefit costs, employer payroll taxes, and stock-based compensation.

Cost of Testing Revenue. Cost of testing revenue consists primarily of costs related to laboratory supplies, personnel-related costs, and overhead costs.

Cost of Other Revenue. Cost of other revenue consists primarily of costs related to laboratory supplies and personnel-related costs.

Research and Development Expense. Research and development expenses consist primarily of personnel-related costs and laboratory supplies, which includes costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of our current test offerings and costs incurred in the discovery, development and validation of our pipeline of test candidates.

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Selling, General, and Administrative Expense. Selling, general, and administrative expenses include costs associated with managing and growing our businesses. Selling, general, and administrative expenses consist primarily of personnel-related costs and third-party costs for sales, marketing, customer service, billing and collection, legal, finance and accounting, information technology, and human resources.

Legal Charges Pending Settlement. Legal charges pending settlement includes accruals related to potential legal settlements.

Goodwill and Long-Lived Asset Impairment Charges. Goodwill and long-lived asset impairment charges include the impairment loss recognized on our goodwill or long-lived assets, including impairments recognized on intangible assets and right-of-use (ROU) lease assets.

Other Income (Expense). Other income (expense) includes interest income earned on our cash, cash equivalents, and restricted cash held in short-term interest-bearing accounts; interest expense associated with our debt and amortization of deferred financing costs and original issue discount costs; gains or losses on the sale of assets or businesses; and foreign currency gains and losses, realized gain or loss on marketable securities, and other nonrecurring income and expenses.

Results of Operations

Revenue

Test revenues for the year ended December 31, 2022 increased $12.0 million compared to the prior year. Revenue from Pharmacogenomics increased $33.9 million compared to the prior year due primarily to a 35% increase in volume. Prenatal revenues increased $9.6 million due primarily to the acquisition of Gateway and an increase of 7% in average reimbursement per test excluding Gateway. Tumor Profiling revenues increased due to volume increases in our Prolaris and MyChoice CDx products, partially offset by a decrease in international revenue due to changes in foreign exchange rates and a one-time milestone revenue earned in the prior year. Autoimmune revenues decreased $27.9 million compared to the prior year due to the sale of the Myriad Autoimmune business on September 13, 2021. Hereditary Cancer revenues decreased $10.8 million due primarily to changes in foreign exchange rates.

Other revenue for the year ended December 31, 2022 declined $24.2 million compared to the year ended December 31, 2021, due to the sale of Myriad RBM, Inc. on July 1, 2021.

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Cost of Sales

The cost of testing revenue as a percentage of revenue increased from 27.9% to 29.8% during the year ended December 31, 2022 compared to the year ended December 31, 2021.  The increase was primarily driven by the shift in the product mix for the current period and an increase in compensation costs due to an increase in the number of employees and an increase in the average cost per employee during the 2022 period.

The cost of other revenue as a percentage of revenue was 49.2% for the year ended December 31, 2021. The sale of Myriad RBM, Inc. was completed on July 1, 2021, and as a result, there were no corresponding costs during the current period.

Research and Development Expense

Research and development expense for the year ended December 31, 2022 increased by $3.5 million compared to the prior year primarily due to an increase in compensation expense and information technology related costs, partially offset by a decrease in clinical trial costs and costs incurred in the 2022 period related to our strategic transformation initiatives as compared to the prior year.

Selling, General, and Administrative Expense

Selling, general, and administrative expense decreased by $23.1 million for the year ended December 31, 2022 compared to the prior year due primarily to a $23.9 million decrease in legal expenses, which was driven in part by the receipt of insurance proceeds for certain legal matters of $12.0 million in 2022 and a decrease in litigation expenses during 2022. Additionally, costs from our strategic transformation initiative decreased by $11.6 million in 2022 due to a decrease in retention and severance costs as well as related consulting costs. The remaining decrease in selling, general, and administrative expenses in 2022 is due to a $9.7 million decrease in amortization expense due to intangible assets sold in the divestitures in the prior year and a $8.8 million decrease in bonus and commission expenses. The decreases were partially offset by a $17.4 million increase in sales and marketing expenses due to more in-person sales and marketing events and travel-related expenses in 2022, a $7.6 million increase in wages and other compensation expenses, a $5.5 million increase in consulting expenses, and a $3.3 million increase in information and technology expenses.

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Legal Charges Pending Settlement

Legal charges pending settlement decreased for the year ended December 31, 2022 compared to the prior year due to $62.0 million of accruals related to potential legal settlements recorded in the prior year, including $48.0 million in connection with the qui tam lawsuit against Crescendo Bioscience, LLC and the Company and $14.0 million in connection with the Abelli lawsuit. These amounts were subsequently paid in connection with the settlement of these cases in April 2022 and January 2022, respectively. There were no corresponding legal charges pending settlement in the year ended December 31, 2022.

Goodwill and Long-lived Asset Impairment Charges

Goodwill and long-lived asset impairment charges increased for the year ended December 31, 2022 compared to the prior year primarily due to the Company recognizing a $13.0 million impairment to ROU assets and a $3.9 million impairment to the related leasehold improvements in the current year as a result our decision to no longer use certain leased facilities in order to consolidate space. During the prior period, the Company recognized a $1.8 million impairment to ROU assets as a result of the voluntary early termination of certain lease agreements.

Other Income (Expense)

Other income (expense) decreased for the year ended December 31, 2022 compared to the prior year due primarily to the $121.0 million net gain recognized on the sale of Myriad RBM, Inc. and the $31.2 million net gain recognized on the sale of the Myriad myPath, LLC laboratory in the prior period, partially offset by charges in the prior period, including losses of $5.2 million and $6.5 million for a non-cancelable purchase commitment and inventory, respectively, recognized in connection with certain divestiture transactions, as well as a $3.4 million decrease in interest expense in the current period. The interest expense in the prior period is related to the debt outstanding at that time, which was repaid in full on July 30, 2021. There was no debt outstanding during the year ended December 31, 2022.

Income Tax Benefit

Our tax rate is the product of a U.S. federal effective rate of 21.0% and a blended state income tax rate of approximately 3.4%. Certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period.

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Income tax benefit for the year ended December 31, 2022 was $(28.6) million, and our effective tax rate was (20.3)%. For the year ended December 31, 2022, our effective tax rate differs from the U.S. federal statutory rate primarily due to disallowed executive compensation expenses, stock compensation, change in valuation allowance, and research and development credits. For the year ended December 31, 2021, our effective tax rate differs from the U.S. federal statutory rate primarily due to disallowed executive compensation expenses, differences between the book and tax basis of assets divested, the tax impact of the CARES Act, stock compensation, and release of a valuation allowance.

Liquidity and Capital Resources

Our primary sources of liquidity are our cash, cash equivalents and marketable investment securities, our cash flows from operations, and, in certain circumstances as discussed below, amounts available for borrowing under our Amended Facility. Our capital deployment strategy focuses on use of resources in the key areas of research and development, technology and acquisitions. We believe that investing organically through research and development and new product development or acquisitively to support our business strategy provides the best return on invested capital.

We believe that our existing capital resources will be sufficient to meet our projected operating requirements for the foreseeable future. In addition, our capital resources and cash on hand may be used for acquisitions or other strategic investments.

All previously outstanding borrowings under our Amended Facility, which matures on July 31, 2023, were repaid on July 30, 2021 using cash generated from divestitures and as such, we have no outstanding borrowings as of December 31, 2022.

Our available capital resources, however, may be consumed more rapidly than currently expected, or may be insufficient for our business needs for many reasons, including as a result of our operational cash needs, capital expenditures, and litigation related costs not covered by, or above the limits set forth in, our insurance. As a result, we may need or want to raise additional financing. We may not be able to secure such financing in a timely manner or on favorable terms, if at all. The current rising interest rate environment, together with recessionary headwinds, could make any potential financing more difficult or expensive to obtain. In addition, as of December 31, 2022, our borrowing limit under the Amended Facility has decreased to $150.0 million, and we remain subject to financial covenants under our Amended Facility, which could limit our ability to incur additional indebtedness under the Amended Facility or otherwise or impact our decision to pursue other financing. Without additional funds, we may be forced to delay the build-out of our new laboratories, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations, or delay development of our tests in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals could be adversely affected.

The Amended Facility restricts our ability to make future borrowings if unrestricted cash, cash equivalents and marketable securities exceed $150.0 million, unless such borrowings are in connection with certain permitted acquisitions. Unrestricted cash, cash equivalents, and marketable securities totaled $169.7 million as of December 31, 2022. Our revolving commitment amount under the Amended Facility is $150.0 million as of December 31, 2022. As our total unrestricted cash, cash equivalents, and marketable securities exceeded $150.0 million as of December 31, 2022, we are currently unable to make borrowings under the Amended Facility unless related to a permitted acquisition. In addition, we are subject to a minimum liquidity covenant, which requires us to maintain liquidity of $150.0 million. Liquidity is defined under the Amended Facility as the sum of our unrestricted cash, cash equivalents and marketable investment securities plus the aggregate undrawn and available amount of the revolving commitments under the Amended Facility.

From time to time, we enter into purchase commitments or other agreements that may materially impact our liquidity position in future periods. In February 2022, we entered into a non-cancelable operating lease for approximately 230,000 square feet in west Salt Lake City, Utah. The lease has a term of 15 years, which, along with rent payments, is expected to commence in the third quarter of 2023. Total future rent payments under the lease are approximately $78.0 million. We also entered into a non-cancelable operating lease for approximately 63,000 square feet of leased space in South San Francisco, California. The lease has a term of 10 years and, along with rent payments, is expected to commence in the third quarter of 2023. Total future rent payments under the lease are approximately $58.8 million.

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Because of the technical nature of our business and our focus on science, research, and development, we are highly dependent upon our ability to attract and retain highly qualified and experienced management, scientific, and technical personnel. Competition and increased compensation for such personnel and other qualified personnel have increased the difficulty and cost of hiring and retaining qualified personnel. Loss of the services of or failure to recruit additional key management, scientific, and technical personnel and other qualified personnel who are necessary to operate our business would adversely affect our business, and it may have a material adverse effect on our business as a whole. Additionally, disruptions to our supply chain could cause shortages of critical materials required to conduct our business, which may have a material adverse effect on our business as a whole. In addition, inflation has had, and we expect it will continue to have, an impact on the costs we incur to attract and retain qualified personnel, costs to generate sales and produce diagnostic testing results, and costs of lab supplies.

The following table represents the balances of cash, cash equivalents, and marketable investment securities as of December 31, 2022 and 2021:

The decrease in cash, cash equivalents, and marketable investment securities as of December 31, 2022 compared to December 31, 2021 was primarily driven by $106.3 million in cash used by operations, which included legal settlement payments of $62.0 million, as well as $57.2 million in cash used for our acquisition of Gateway, $45.3 million in cash used for capital expenditures, and $4.3 million in cash used for the payment of withholding tax in connection with the issuance of common stock, net of proceeds from the issuance of common stock. The Company also had restricted cash of $9.5 million and $1.4 million as of December 31, 2022 and 2021, respectively.

The following table represents the condensed cash flow statement:

Cash Flows from Operating Activities

In the year ended December 31, 2022, the decrease in cash flows from operating activities was primarily due to the change in the balance of prepaid taxes due to the receipt of an $89.0 million U.S. federal tax refund in the prior year and an $81.2 million decrease in accrued liabilities during the current year, which was primarily driven by legal settlement payments of $62.0 million in 2022.

Cash Flows from Investing Activities

In the year ended December 31, 2022, the decrease in cash flows provided by investing activities as compared to the prior year was primarily due to the receipt of $379.1 million in cash proceeds from divestitures in the prior year, with no corresponding proceeds in the current period and the acquisition of Gateway, net of cash acquired, for $57.2 million, partially offset by a $67.1 million increase in proceeds from marketable investment securities in the current period.

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Cash Flows from Financing Activities

In the year ended December 31, 2022, the decrease in cash flows used in financing activities as compared to the prior year was primarily due to the use of $226.4 million in cash for repayments of the outstanding debt balances under the Amended Facility during the prior year, partially offset by a decrease of $84.6 million in proceeds from the exercise of stock options, net of shares exchanged for payroll withholding tax in the current year as compared to the prior year.

Effects of Inflation

Inflation has had, and may continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to generate sales and produce testing results, and costs of laboratory supplies. Inflationary costs have impacted our profitability and continue to adversely affect our business, financial condition and results of operations. In addition, increased inflation has had, and may continue to have, an effect on interest rates. Increased interest rates may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, additional funding.

Share Repurchase Program

Our Board of Directors has previously authorized us to repurchase up to $200.0 million of our outstanding common stock. We may repurchase our common stock from time to time or on an accelerated basis through open market transactions or privately negotiated transactions as determined by our management. The amount and timing of stock repurchases under the program will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. As of December 31, 2022, we are authorized to repurchase up to $110.7 million under our current share repurchase authorization. See “Part II, Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Issuer Purchases of Equity Securities” above.

Critical Accounting Estimates

Critical accounting estimates are those policies which are both important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting estimates are as follows:

•revenue recognition;

•goodwill;

•purchase accounting; and

•income taxes.

Revenue Recognition.  Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to a customer. We exclude sales, use, value-added, and other taxes we collect on behalf of third parties from revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer.

We generate revenue primarily by performing genetic testing. We perform our obligation under a contract with a customer by processing those tests and communicating the test results to customers, in exchange for consideration from the customer. Revenue from the sale of tests is recorded at the estimated transaction price. We have determined that the communication of test results indicates transfer of control for revenue recognition purposes. We have the right to bill our customers upon the completion of performance obligations and thus do not record contract assets. Occasionally customers make payments prior to our performance of our contractual obligations. When this occurs, we record a contract liability as deferred revenue.

Significant judgments are required in determining the transaction price in connection with satisfying performance obligations under the revenue standard. In determining the transaction price, we estimate the expected amount of consideration as revenue. We apply this method consistently for similar contracts when estimating the effect of any uncertainty on an amount of variable consideration to which we will be entitled.  An estimate of transaction price does not include any estimated amount of variable consideration that is constrained. We consider all the information (historical, current, and forecast) that is reasonably available to identify possible consideration amounts. To determine our estimated transaction price, we apply the expected value method for sales where we have a large number of contracts with similar characteristics. We then consider the probability of the variable consideration for each possible scenario. We have significant experience with historical collection patterns and use this experience to estimate transaction prices.

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The estimate of revenue is affected by assumptions in payor mix and in payor behavior such as changes in payor collections, current customer contractual requirements, and experience with ultimate collection from third-party payors. When assessing the total consideration for insurance carriers and patients, revenues are further constrained for estimated refunds. We reserve certain amounts in accrued liabilities in the Consolidated Balance Sheets in anticipation of request for refunds of payments made previously by insurance carriers, which are accounted for as reductions in revenues in the Consolidated Statements of Operations and Comprehensive Loss.

Goodwill.  We test goodwill for impairment on an annual basis and in the interim by reporting unit if events and circumstances indicate that goodwill may be impaired.  The events and circumstances that are considered include business climate and market conditions, legal factors, operating performance indicators and competition. Impairment of goodwill is evaluated on a qualitative basis before calculating the fair value of the reporting unit. If the qualitative assessment suggests that impairment is more likely than not, a quantitative impairment analysis is performed.  The quantitative analysis involves comparison of the fair value of a reporting unit with its carrying amount. The valuation of a reporting unit requires judgment in estimating future cash flows, discount rates, residual growth rates and other factors. In making these judgments, we evaluate the financial health of our business, including such factors as industry performance, market saturation and opportunity, changes in technology and operating cash flows, and other relevant entity-specific events. Changes in our forecasts or decreases in the value of our common stock could cause book value of reporting units to exceed their fair values. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. If an event occurs that would cause a revision to the estimates and assumptions used in analyzing the value of the goodwill, the revision could result in a non-cash impairment charge that could have a material impact on the financial results.

As of December 31, 2022, we have recorded goodwill of $286.8 million on our Consolidated Balance Sheets. This goodwill is attributable to the Myriad Mental Health, Myriad International, Myriad Women's Health, and Gateway reporting units. We qualitatively evaluated our reporting units for impairment. The factors that are considered in the qualitative analysis include macroeconomic conditions, industry and market considerations, revenue growth rates, current and financial performance, other factors that would have a negative effect on earnings and cash flows, and other relevant entity-specific events and information. Significant judgment is required in assessing the weight of the qualitative factors. We noted no indicators of impairment during the year ended December 31, 2022.

Goodwill impairment testing requires us to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, and other financial assumptions, which are based upon our long-term plan. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both debt and equity, including a risk premium. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. While there are always changes in assumptions to reflect changing business and market conditions, our overall methodology used has remained unchanged.

Purchase Accounting. We account for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. We base the estimated fair value of identifiable intangible assets acquired in a business combination on third-party valuations that use information and assumptions provided by our management, which consider our estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods.

In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under Accounting Standards Codification (ASC) 480 - Distinguishing Liabilities from Equity, a liability is recognized equal to the fair value of the contingent payments we expect to make as of the acquisition date. This liability is remeasured each reporting period and changes in the fair value are recorded in change in fair value of contingent consideration in our Consolidated Statements of Operations.

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Income Taxes.  Our income tax provision is based on income before taxes and is computed using the liability method in accordance with ASC 740 – Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates projected to be in effect for the year in which the differences are expected to reverse.  Significant estimates are required in determining our provision for income taxes.  Some of these estimates are based on interpretations of existing tax laws or regulations, or the expected results from any future tax examinations.  Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes.  Those factors include, but are not limited to, changes in tax laws, regulations and/or rates, the results of any future tax examinations, changing interpretations of existing tax laws or regulations, changes in estimates of prior years’ items, past levels of research and development spending, acquisitions, changes in our corporate structure, and changes in overall levels of income before taxes all of which may result in periodic revisions to our provision for income taxes.

Developing our provision for income taxes, including our effective tax rate and analysis of potential uncertain tax positions, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowance we deem necessary to offset deferred tax assets.  If we do not maintain taxable income from operations in future periods, we may increase the valuation allowance for our deferred tax assets and record material adjustments to our income tax expense.  Our judgment and tax strategies are subject to audit by various taxing authorities.  While we believe we have provided adequately for our uncertain income tax positions in our consolidated financial statements, an adverse determination by these taxing authorities could have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Interest and penalties on income tax items are included as a component of overall income tax expense.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements.

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Report. Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company.

Overview

We discover and commercialize genetic tests that determine the risk of developing disease, assess the risk of disease progression, or guide treatment decisions across medical specialties where critical genetic insights can significantly improve patient care and lower health care costs. Our mission is to advance health and well-being for all, empower individuals with vital genetic insights and enable healthcare providers to better detect, treat and prevent disease.

We are currently executing upon a strategic transformation plan that is focused on the following strategic priorities: (1) innovation that improves clinical outcomes, ease of use, and access; (2) enterprise capabilities to accelerate growth and scale to market opportunity; and (3) focus on execution and delivery of consistent results. In connection with these strategic priorities, we are focusing our efforts on our Oncology, Women's Health, and Mental Health products. We intend to develop and enhance best-in-class products to support growth, improve patient and provider experience, and reach more patients of all backgrounds. By investing in tech-enabled commercial tools, we believe we will be able to drive increased engagement, improve revenue cycle management, and reduce complexity and cost. We are committed to disciplined management of our initiatives to fulfill our mission and drive long-term growth and profitability. With a foundation of financial, commercial, operational and technological strength, we expect to accelerate growth as we launch a new enterprise commercial model, launch a unified ordering portal, invest in new sequencing technologies, further develop direct-to-consumer channels, and build commercial capabilities to support new products and offerings.

Our consolidated revenues consist primarily of sales of molecular diagnostic tests through our wholly-owned subsidiaries.  During the year ended December 31, 2021, we reported total revenues of $690.6 million, net loss attributable to Myriad Genetics, Inc. stockholders of $27.2 million and basic and diluted loss per share of $0.35.

Industry and Competition

Patients, healthcare providers, payors and health systems are looking to apply the power of genetic insights, molecular diagnostics and precision medicine to achieve improved clinical outcomes and lower cost. Key industry trends include:

•accelerating shifts in consumer engagement, early detection, home-based care models, the rise of low-cost sequencing, telemedicine and virtual care;

•disruption in the way outpatient care is delivered in the midst of the COVID-19 pandemic, coupled with broadened awareness of the vital role of diagnostic testing;

•expanding access to genetic insights, particularly among underserved populations with increased focus on health equity, reducing disparities in health care outcomes and ensuring increased access for challenged communities;

•broader, more innovative use of large data sets and analytics; and

•growth in personalized medicine and the interest in new partnership models to advance companion diagnostics and serve patients with specific treatments based on their own genetic makeup and biology.

These market trends create new opportunities to position us, and our products, for growth and commercial success through enhanced customer service levels and a stronger alignment of our value proposition with physicians and payors. Our focus is on innovative science that improves health outcomes, access for all, and ease of experience in the genetic testing process. We expect to use our ability to innovate not only in research, development and technology, but also in go-to-market approaches, commercial capabilities, and tech-enabled applications so that we can adapt quickly to customer preferences and market dynamics.

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Seasonality

We have historically experienced seasonality in our testing business. The quarter ended December 31st is generally strong as we typically experience an increase in volumes from patients who have met their annual insurance deductible. Conversely, in the quarter ended March 31st we typically experience a decrease in volumes due to the annual reset of patient deductibles. Additionally, the volume of testing is negatively impacted by the summer season, which is generally reflected in the quarter ended September 30th. These seasonality patterns have generally continued during the COVID-19 pandemic, but due to the continued uncertainty surrounding the COVID-19 pandemic, we cannot predict if seasonality will follow the same pattern as in prior years.

Components of Consolidated Operations

Revenue

Molecular Diagnostic Testing. Our molecular diagnostic tests are designed to analyze genes and their expression levels to assess an individual’s risk for developing disease later in life, determine a patient’s likelihood of responding to a particular drug, or assess a patient’s risk of disease progression. Provided with this valuable information, physicians may more effectively manage their patients’ health care. Revenue is recognized when the communication of test results has occurred.

Pharmaceutical and Clinical Service. On July 1, 2021, we divested Myriad RBM, Inc., which provided pharmaceutical and clinical services. As a result, we ceased providing pharmaceutical and clinical services as of that date. We also divested of other clinical operations in February 2020. Through Myriad RBM, Inc., we provided biomarker discovery, pharmaceutical and clinical services to the pharmaceutical, biotechnology, and medical research industries utilizing our multiplexed immunoassay technology. Revenue for these services was recognized at the completion of the pharmaceutical and clinical services.

Costs and Expenses

Expenses. Personnel-related costs for each category of Costs and Expenses includes salaries, bonuses, employee benefit costs, employer payroll taxes, and stock-based compensation.

Cost of Molecular Diagnostic Testing. Cost of molecular diagnostic testing consists primarily of costs related to lab supplies, personnel-related costs, and overhead costs.

Cost of Pharmaceutical and Clinical Service. Cost of pharmaceutical and clinical service consists primarily of costs related to lab supplies and personnel-related costs.

Research and Development Expense. Research and development expenses consists primarily of personnel-related costs and lab supplies, which includes costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of our current molecular diagnostic test offerings and costs incurred for the discovery, development and validation of our pipeline of molecular diagnostic and companion diagnostic candidates.

Selling, General and Administrative Expense. Selling, general and administrative expenses include costs associated with managing and growing our businesses. Selling, general and administrative expenses consist primarily of salaries, commissions, related personnel costs, and third-party costs for sales, marketing, customer service, billing and collection, legal, finance and accounting, information technology, and human resources.

Goodwill and long-lived asset impairment charges. Goodwill and long-lived asset impairment charges includes the impairment loss recognized on the Company's goodwill or long-lived assets, including impairments recognized on intangible assets and right-of-use lease assets.

Other Income (Expense). Other income (expense) includes interest income earned on our cash and cash equivalents holdings in short-term interest-bearing accounts; interest expense associated with our debt and amortization of deferred financing costs and original issue discount costs; gains or losses on the sale of assets or businesses; and foreign currency gains and losses, realized gain or loss on marketable securities, and other nonrecurring income and expenses.

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Results of Operations

This section of Management’s Discussion and Analysis generally discusses year-to-year comparisons between the year ended December 31, 2021 and the comparative year ended December 31, 2020. Due to our change in fiscal year from June 30th to December 31st, effective January 1, 2021, the comparative year ended December 31, 2020 was unaudited. Discussions of comparisons between (1) the transition period for the six months ended December 31, 2020 and the comparative period of the six months ended December 31, 2019 and (2) the years ended June 30, 2020 and June 30, 2019 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Transition Report on Form 10-K for the transition period ended December 31, 2020, filed with the SEC on March 16, 2021.

Years Ended December 31, 2021 and 2020

Revenue

Molecular diagnostic revenues for the year ended December 31, 2021 increased $152.9 million compared to the same period in the prior year. Revenue for the year ended December 31, 2020 was negatively impacted by the pandemic as patients faced significant obstacles accessing healthcare professionals. Tumor Profiling revenues increased $62.5 million compared to the same period in the prior year due to a $31.9 million increase in revenue for Prolaris due to expanded coverage and the submission of claims for previously performed tests that were pending clarification of the coverage policy, as well as a $25.3 million increase in revenues from MyChoice CDx due to expansion in Japan and other areas. Revenue from Pharmacogenomics increased $35.0 million compared to the same period in the prior year due primarily to a 58% increase in volume. Prenatal revenues increased $32.3 million compared to the same period in the prior year due primarily to an increase of 19% in the average reimbursement per test and an increase of 12% in volume, as well as a change in estimate related to revenues from prior periods. Hereditary Cancer revenues increased $31.9 million compared to the same period in the prior year due primarily to a 13% increase in volume as well as a change in estimate related to revenues from prior periods. These increases were partially offset by a $7.5 million decrease in Autoimmune compared to the same period in the prior year due primarily to the completion of the sale of select operating assets and intellectual property, including the Vectra test, from the Myriad Autoimmune business unit, on September 13, 2021.

Pharmaceutical and clinical service revenue for the year ended December 31, 2021 declined $19.4 million compared to the year ended December 31, 2020, primarily due to the sale of Myriad RBM, Inc. on July 1, 2021 and the inclusion of revenue from Privatklinik Dr. Robert Schindlbeck GmbH & Co. KG (the "Clinic") for two months in the previous period prior to the sale of the Clinic in February 2020.

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Cost of Sales

The cost of molecular diagnostic testing as a percentage of revenue decreased from 28.3% to 26.9% during the year ended December 31, 2021 compared to the year ended December 31, 2020.  The decrease was primarily driven by the increase in revenue from higher test volumes during the current period, as higher revenues were generated to cover fixed costs of performing the tests.

The cost of pharmaceutical and clinical services as a percentage of revenue decreased from 3.6% to 1.7% during the year ended December 31, 2021 compared to the year ended December 31, 2020 due to the sale of Myriad RBM, Inc. on July 1, 2021 and the inclusion of the costs related to the Clinic for two months in the previous period prior to the sale of the Clinic in February 2020.

Research and Development Expense

Research and development expense for the year ended December 31, 2021 increased by $8.6 million compared to the prior year due primarily to costs incurred in the current year as part of the Company's strategic transformation initiatives, increases in lab expenses, and increases in compensation costs as a result of employee bonus reductions in the prior period stemming from the significant impact of COVID-19 on our financial results.

Selling, General and Administrative Expense

Selling, general and administrative expense increased by $40.9 million for the year ended December 31, 2021 compared to the prior year due primarily to a $12.6 million increase in stock-based compensation due to lower stock-based compensation in the prior period as a result of adjustments to stock-based compensation related to the departure of our former Chief Executive Officer, and a $16.2 million increase in costs incurred in the current period as part of the Company's strategic transformation initiatives, as well as an $8.2 million increase in bonus expense as a result of employee bonus reductions in the prior year stemming from the significant impact of the COVID-19 pandemic on our financial results, a $6.3 million increase in legal expenses, a $5.0 million increase in consulting fees, and a $3.3 million increase in IT hardware costs. Increases were partially offset by a $10.5 million decrease in amortization expense and a decrease in sales and marketing expenses of $3.4 million due primarily to fewer in-person sales and marketing events and travel-related expenses.

Legal Charges Pending Settlement

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Legal charges pending settlement increased for the year ended December 31, 2021 compared to the prior year due to $62.0 million of accruals related to potential legal settlements, including $48.0 million in connection with the qui tam lawsuit against Crescendo Bioscience, LLC and the Company and $14.0 million in connection with the Abelli lawsuit. There was no corresponding legal charges pending settlement in the prior year. The Abelli lawsuit was subsequently settled on January 24, 2022, pursuant to which the Company agreed to pay $14.0 million to the plaintiffs.

Goodwill and Long-lived Asset Impairment Charges

Goodwill and long-lived asset impairment charges decreased for the year ended December 31, 2021 compared to the prior year due primarily to the Company recognizing goodwill impairment charges in the prior year related to the Autoimmune reporting unit, as well as additional charges related to the abandonment of in-process research and development intangible assets. In the current year, we recognized a $1.8 million impairment to right-of-use assets as a result of the voluntary early termination of certain lease agreements to consolidate space.

Other Income (Expense)

Other income (expense) increased for the year ended December 31, 2021 due primarily to the combined $152.2 million net gain recognized on the sales of Myriad RBM, Inc. and the Myriad myPath, LLC laboratory in the current period, partially offset by expenses or losses in the current period, including the $0.6 million net loss recognized on the sale of the Myriad Autoimmune business unit and losses of $5.2 million and $6.5 million for a non-cancelable purchase commitment and inventory, respectively, recognized in connection with the divestiture transactions. The increase in Other income (expenses) was partially offset by the receipt of $14.6 million in stimulus funds from the CARES Act in the prior period. Interest expense decreased due primarily to the repayment of the Company's Amended Facility in full on July 30, 2021.

Income Tax Benefit

Our tax rate is the product of a U.S. federal effective rate of 21.0% and a blended state income tax rate of approximately 3.4%. Certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period.

Income tax benefit for the year ended December 31, 2021 was $(29.9) million, and our effective tax rate was 52.4%. The change in the effective tax rate for the year ended December 31, 2021 as compared to the prior year is due primarily to the tax benefit recorded in the prior year related to the CARES Act, tax expense recorded in the prior year related to asset impairments, tax benefit recorded in the current year related to the differences between the book and tax basis of assets divested, disallowed executive compensation expenses, the release of a valuation allowance, and stock compensation expense.

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Liquidity and Capital Resources

Our primary sources of liquidity are our cash, cash equivalents and marketable investment securities, our cash flows from operations, our cash flows from investing activities, and, in certain circumstances as discussed below, amounts available for borrowing under our Amended Facility. Our capital deployment strategy focuses on use of resources in the key areas of research and development, technology and acquisitions. We believe that investing organically through research and development or acquisitively to support business strategy provides the best return on invested capital. During the year ended December 31, 2021, our liquidity increased by $379.1 million from the combined proceeds from the sales of Myriad RBM, Inc., the Myriad Autoimmune business, and the Myriad myPath, LLC laboratory. The cash generated from these divestitures provides us with additional liquidity as we seek out strategic opportunities for capital deployment.

We believe that our existing capital resources will be sufficient to meet our projected operating requirements for the foreseeable future. In addition, our capital resources and cash on hand may be used for acquisitions or other strategic investments.

All remaining borrowings under our Amended Facility, which matures on July 31, 2023, were repaid on July 30, 2021 using cash generated from our recent divestitures. Our available capital resources, however, may be consumed more rapidly than currently expected, and we may need or want to raise additional financing. We may not be able to secure such financing in a timely manner or on favorable terms, if at all. In addition, we are subject to financial covenants as part of our outstanding Amended Facility that could limit our ability to incur additional indebtedness. Without additional funds, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations, and potentially delay development of our diagnostic tests in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals could be adversely affected.

The Amended Facility restricts our ability to make future borrowings if unrestricted cash, cash equivalents and marketable securities exceed $150.0 million, unless such borrowings are in connection with certain permitted acquisitions. Unrestricted cash, cash equivalents, and marketable securities totaled $398.8 million as of December 31, 2021. Our revolving commitment amount is $250.0 million as of December 31, 2021. As the Company's total unrestricted cash, cash equivalents, and marketable securities exceeded $150.0 million as of December 31, 2021, we will be unable to make future borrowings unless related to a permitted acquisition. In addition, following the expiration of the waiver of the leverage ratio and interest coverage ratio covenants, which waiver is effective until March 31, 2022, our ability to borrow under the Amended Facility will be limited if we are unable to comply with those financial covenants.

From time to time, we enter into purchase commitments or other agreements that may materially impact our liquidity position in future periods. In April 2021, a non-cancelable operating lease for our new corporate headquarters in Salt Lake City, Utah, commenced with a lease term of 15 years and total future lease payments of approximately $66.0 million as of December 31, 2021. In addition, in late 2021, we entered into two non-cancelable operating leases, one for approximately 7,500 square feet in Durham, North Carolina, which expires in 2029, and one for approximately 63,000 square feet in South San Francisco, California, which expires in 2033. The total future lease payments of the new North Carolina and California leases are approximately $2.3 million and $58.8 million, respectively, as of December 31, 2021. As of December 31, 2021, the Company had approximately $4.0 million of non-cancelable contractual purchase obligations with varying terms over the next two years. In the first quarter of 2022, we entered into a non-cancelable operating lease for approximately 230,000 square feet in Salt Lake City, Utah, which will commence in 2022, with a lease term of 15 years and total future lease payments of approximately $77.8 million.

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Due to the continually evolving global situation from the COVID-19 pandemic, including the emergence of the more highly transmissible Delta and Omicron coronavirus variants and their impact on the ongoing recovery from the earlier effects of the COVID-19 pandemic, it is not possible to predict whether ongoing consequences of the pandemic are reasonably likely to materially affect our liquidity and capital resources in the future. Because of the technical nature of our business and our focus on science, research and development, we are highly dependent upon our ability to attract and retain highly qualified and experienced management, scientific, and technical personnel. Competition and compensation for such personnel and other qualified personnel increased as employment vacancies surged during the year ended December 31, 2021, which has increased the difficulty and cost of hiring and retaining qualified personnel. In addition, potential federal or state regulations that require us to mandate COVID-19 vaccinations for our employees, or any future decision on our part to voluntarily require our employees to receive a COVID-19 vaccine, could impact our ability to hire and retain employees. Loss of the services of or failure to recruit additional key management, scientific and technical personnel and other qualified personnel who are necessary to operate our business would adversely affect our molecular diagnostic business, and it may have a material adverse effect on our business as a whole. Additionally, disruptions to our supply chain as a result of the COVID-19 pandemic could cause shortages of critical materials required to conduct our business, which may have a material adverse effect on our business as a whole. In addition, inflation has had, and we expect it will continue to have, an impact on the costs we incur to attract and retain qualified personnel, costs to generate sales and produce diagnostic testing results, and costs of lab supplies.

The following table represents the balances of cash, cash equivalents and marketable investment securities:

The increase in cash, cash equivalents, and marketable investments securities for the year ended December 31, 2021 was primarily driven by $379.1 million in total cash consideration from the sale of Myriad RBM, Inc., the Myriad Autoimmune business, and the Myriad myPath, LLC laboratory, the receipt of a U.S. federal tax refund of $89.6 million, and proceeds of $91.8 million from the exercise of stock options, partially offset by $226.4 million in repayments of our Amended Facility and $10.5 million in transaction expenses related to the foregoing divestitures, as well as by cash used in operating activities as part of our normal course of business.

During the transition period ended December 31, 2020, the decrease in cash, cash equivalents and marketable investment securities was primarily driven by the Company using $73.7 million in cash for operating activities.

The following table represents the condensed cash flow statement:

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Cash Flows from Operating Activities

In the year ended December 31, 2021, the increase in cash flows was primarily due to the change in the balance of prepaid taxes due to the receipt of a $89.6 million U.S. federal tax refund, partially offset by a decrease in cash flows from operating activities primarily driven by a $37.7 million change in trade accounts receivable in the current period compared to the prior period due to the change in sales volumes and cash collections as a result of the significant impact of the COVID-19 pandemic on our financial results during the prior period.

Cash Flows from Investing Activities

In the year ended December 31, 2021, the increase in cash flows from investing activities as compared to the same period in the prior year was primarily due to incremental cash proceeds of $357.8 million from divestitures in the current period as compared to the prior period. This increase is partially offset by an increase of $132.0 million of purchases of marketable investment securities in the current period as compared to the prior period, a decrease of $8.2 million in proceeds from marketable investment securities during the current period, and an increase of $4.8 million in capital expenditures in the current period.

Cash Flows from Financing Activities

In the year ended December 31, 2021, the decrease in cash flows from financing activities as compared to the same period in the prior year was primarily due to the use of $226.4 million in cash for repayments of the Amended Facility during the current year. The decrease was partially offset by an increase of $80.2 million in proceeds from the exercise of stock options, net of shares exchanged for payroll withholding tax in the current year as compared to the prior year.

Effects of Inflation

We do not believe that inflation has had a material impact on our business, sales, or operating results during the periods presented. However, inflation has had, and we expect that it will continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to generate sales and produce diagnostic testing results, and costs of lab supplies. Inflationary costs may impact our profitability and could adversely affect our business, financial condition and results of operations.

Share Repurchase Program

Our Board of Directors has previously authorized us to repurchase up to $200.0 million of our outstanding common stock. We may repurchase our common stock from time to time or on an accelerated basis through open market transactions or privately negotiated transactions as determined by our management. The amount and timing of stock repurchases under the program will depend on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. As of December 31, 2021, we are authorized to repurchase up to $110.7 million under our current share repurchase authorization. See “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds – Issuer Purchases of Equity Securities” below.

Critical Accounting Policies

Critical accounting policies are those policies which are both important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are as follows:

•revenue recognition;

•goodwill; and

•income taxes.

Revenue Recognition.  Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to a customer. We exclude sales, use, value-added, and other taxes we collect on behalf of third parties from revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer.

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We generate revenue primarily by performing molecular diagnostic testing. We perform our obligation under a contract with a customer by processing those diagnostic tests and communicating the test results to customers, in exchange for consideration from the customer. Revenue from the sale of molecular diagnostic tests is recorded at the estimated transaction price. We have determined that the communication of test results indicates transfer of control for revenue recognition purposes. We have the right to bill our customers upon the completion of performance obligations and thus do not record contract assets. Occasionally customers make payments prior to our performance of our contractual obligations. When this occurs, we record a contract liability as deferred revenue.

Significant judgments are required in determining the transaction price and satisfying performance obligations under the revenue standard. In determining the transaction price, we estimate the expected amount of consideration as revenue. We apply this method consistently for similar contracts when estimating the effect of any uncertainty on an amount of variable consideration to which it will be entitled.  An estimate of transaction price does not include any estimated amount of variable consideration that is constrained. We consider all the information (historical, current, and forecast) that is reasonably available to identify possible consideration amounts. To determine our estimated transaction price, we apply the expected value method for sales where we have a large number of contracts with similar characteristics. We then consider the probability of the variable consideration for each possible scenario. We have significant experience with historical collection patterns and use this experience to estimate transaction prices.

The estimate of revenue is affected by assumptions in payor mix and in payor behavior such as changes in payor collections, current customer contractual requirements, and experience with ultimate collection from third-party payors. When assessing the total consideration for insurance carriers and patients, revenues are further constrained for estimated refunds. The Company reserves certain amounts in accrued liabilities in the Consolidated Balance Sheets in anticipation of request for refunds of payments made previously by insurance carriers, which are accounted for as reductions in revenues in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Goodwill.  We test goodwill for impairment on an annual basis and in the interim by reporting unit if events and circumstances indicate that goodwill may be impaired.  The events and circumstances that are considered include business climate and market conditions, legal factors, operating performance indicators and competition. Impairment of goodwill is evaluated on a qualitative basis before calculating the fair value of the reporting unit. If the qualitative assessment suggests that impairment is more likely than not, a quantitative impairment analysis is performed.  The quantitative analysis involves comparison of the fair value of a reporting unit with its carrying amount. The valuation of a reporting unit requires judgment in estimating future cash flows, discount rates, residual growth rates and other factors. In making these judgments, we evaluate the financial health of our business, including such factors as industry performance, market saturation and opportunity, changes in technology and operating cash flows. Changes in our forecasts or decreases in the value of our common stock could cause book value of reporting units to exceed their fair values. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. If an event occurs that would cause a revision to the estimates and assumptions used in analyzing the value of the goodwill, the revision could result in a non-cash impairment charge that could have a material impact on the financial results.

As of December 31, 2021, we have recorded goodwill of $239.2 million on our Consolidated Balance Sheet. This goodwill is attributable to the Myriad Mental Health, Myriad International, and Myriad Women's Health reporting units. We qualitatively evaluated the Myriad Mental Health and Myriad International reporting units for impairment. The factors that are considered in the qualitative analysis include macroeconomic conditions, industry and market considerations, revenue growth rates, current and financial performance, other factors that would have a negative effect on earnings and cash flows, and other relevant entity-specific events and information. Significant judgment is required in assessing the weight of the qualitative factors. We noted no indicators of impairment during the year ended December 31, 2021.

For our Myriad Women's Health reporting unit, we elected to perform a quantitative assessment of goodwill. We measured the fair value of the Myriad Women's Health reporting unit utilizing the market approach and the discounted cash flow method under the income approach. As a result of the assessment, no goodwill impairment charges were recorded as the estimated fair value of the reporting unit exceeded the carrying value of the goodwill as of December 31, 2021. We performed a sensitivity analysis of the discount rate and the revenue growth rate, which are significant assumptions in the calculation of fair value. We determined that a 1% increase in the discount rate or a 1% decline in forecasted revenue growth would not have changed our determination that the fair value of the reporting unit was in excess of its carrying value.

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Goodwill impairment testing requires us to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, and other financial assumptions, which are based upon our long-term plan. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both debt and equity, including a risk premium. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. While there are always changes in assumptions to reflect changing business and market conditions, our overall methodology used has remained unchanged.

Income Taxes.  Our income tax provision is based on income before taxes and is computed using the liability method in accordance with Accounting Standards Codification (“ASC”) 740 – Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates projected to be in effect for the year in which the differences are expected to reverse.  Significant estimates are required in determining our provision for income taxes.  Some of these estimates are based on interpretations of existing tax laws or regulations, or the expected results from any future tax examinations.  Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes.  Those factors include, but are not limited to, changes in tax laws, regulations and/or rates, the results of any future tax examinations, changing interpretations of existing tax laws or regulations, changes in estimates of prior years’ items, past levels of research and development spending, acquisitions, changes in our corporate structure, and changes in overall levels of income before taxes all of which may result in periodic revisions to our provision for income taxes.

Developing our provision for income taxes, including our effective tax rate and analysis of potential uncertain tax positions, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowance we deem necessary to offset deferred tax assets.  If we do not maintain taxable income from operations in future periods, we may increase the valuation allowance for our deferred tax assets and record material adjustments to our income tax expense.  Our judgment and tax strategies are subject to audit by various taxing authorities.  While we believe we have provided adequately for our uncertain income tax positions in our consolidated financial statements, an adverse determination by these taxing authorities could have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Interest and penalties on income tax items are included as a component of overall income tax expense.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements included in Item 8 of this Report for a description of recent accounting pronouncements.