Personalis Inc

Previous wording

We develop and market advanced cancer genomic tests and analytics. Our tests and analytics are used by pharmaceutical companies for translational research, biomarker discovery, the development of personalized cancer therapies, and we expect in the near future, for clinical trial enrollment. Our advanced tests are used by physicians to detect cancer recurrence, monitor cancer evolution, and uncover insights for therapy selection. We also provide sequencing and data analysis services to support population sequencing initiatives.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

As part of one of our new strategies for 2023 and beyond, we are working with a growing number of leading cancer centers and world-class academic research institutions to build and publish the clinical evidence-base to support our products and our key indications, as well as to obtain reimbursement coverage from Medicare and other payors. Because of the ultra-high analytical sensitivity of our technology, we are initially focusing on three indications: breast cancer, lung cancer, and immunotherapy (IO) monitoring. We have collaborations with Cancer Research UK, University College London, and the Francis Crick Institute (the TRACERx study); The Royal Marsden; the Vall d'Hebron Institute of Oncology (VHIO); Duke University; the Dana-Farber Cancer Institute; University Medical Center Hamburg-Eppendorf (also known as UKE); and Criterium and the Academic Breast Cancer Consortium that will focus on building the evidence-base for our technology and these indications. If the key opinion leaders ("KOLs") we are collaborating with have a positive experience using our products, we are optimistic this will support broader use of our products by other KOLs, as well as clinicians in the future.

Current wording

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

Previous wording

Our work in oncology is underpinned by our experience and capacity for next-generation sequencing at scale. We have the capacity to sequence and analyze over 300 trillion bases of DNA per week in our facility. We believe that our capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to scale further as demand increases. To date, we have sequenced more than 385,000 human samples, of which more than 175,000 were whole human genomes.

Current wording

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

Previous wording

Total revenue increased 13%, or $8.4 million, during 2023 compared to 2022, primarily driven by higher revenue from enterprise sales and pharma tests. Revenue from enterprise sales was $31.7 million in 2023 compared to $26.6 million in 2022, an increase of 19%. Revenue from pharma tests was $31.9 million in 2023 compared to $29.6 million in 2022, an increase of 8%.

Current wording

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

Previous wording

Received Medicare coverage for NeXT Dx.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We derive our revenue from sales of advanced sequencing and analytics to the following four customer types:

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Our ability to increase revenue will depend on our ability to further increase sales to these groups of customers, expand our customer base within each group, and expand our business in the clinical diagnostics market. To do this, we are developing a growing set of state-of-the-art services and products; advancing our operational infrastructure; building our regulatory credentials; focusing our marketing efforts on large pharmaceutical companies; building and publishing the clinical evidence-base to support our products and our key indications, as well as to obtain reimbursement coverage from Medicare and other payors; and seeking additional partnerships such as ours with Natera. We sell through a small direct sales force. In late 2023, we entered into an agreement with Tempus to commercialize NeXT Personal Dx in the clinical diagnostics market and will be leveraging Tempus' significantly larger sales force.

Current wording

Our ability to increase revenue will depend on our ability to further increase sales to these groups of customers and expand our customer base within each group. To do this, we are developing a growing set of state-of-the-art services and products; advancing our operational infrastructure; building our regulatory credentials; focusing our marketing efforts on large pharmaceutical companies; building and publishing the clinical evidence-base to support our products and services in our key indications, pursuing reimbursement coverage from Medicare and other payors; and seeking additional partnerships. We market to biopharma customers and doctors through a small direct sales force. In late 2023, we entered into an agreement with Tempus to co-commercialize NeXT Personal Dx in the clinical diagnostics market and will be leveraging Tempus' significantly larger sales force as a key vector to grow our clinical diagnostic business. In late 2024, we expanded our collaboration partnership with Tempus to enable Tempus to market and sell NeXT Personal to Tempus' pharmaceutical and biotech customers who wish to bundle MRD testing with other Tempus offerings in a given study.

Previous wording

We have one reportable segment from the sale of sequencing and data analysis services. Most of our revenue to date has been derived from sales in the United States.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We expense our research and development costs in the period in which they are incurred. We expect research and development expenses to decrease as a result of our reductions in workforce initiated in 2023 and our closure of operations in China.

Current wording

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

Previous wording

Restructuring and other charges consists of charges in connection with our two reductions in workforce initiated in 2023 and charges in connection with the closure of our China operations.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Other income (expense), net consists primarily of charges related to the issuance and remeasurement of warrants to Tempus during the year ended December 31, 2023. Otherwise, other income (expense), net consists primarily of foreign currency exchange gains and losses.

Current wording

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

Previous wording

This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 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 our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 23, 2023, which is incorporated by reference herein.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Revenue from enterprise sales increased 19%, or $5.1 million, in 2023. This was due to an increase in the volume of samples we tested for Natera, partially offset by lower selling prices. The number of samples we processed for Natera increased by over 55% in 2023.

Current wording

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

Previous wording

We amended our agreement with Natera during the fourth quarter of 2023 to extend minimum volume commitments through the end of 2024. Previously, Natera's volume commitments extended only through the first quarter of 2024. In addition, we plan to introduce a lower-cost version of our exome product offering for Natera in the first half of 2024 in order to support their price requirements, and we expect our total revenue from Natera in 2024 to decline, due to the lower prices.

Current wording

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

Previous wording

Revenue recognized each period is also impacted by timing of our fulfillment of samples under each annual task order. Our annual task orders received in 2023, 2022, and 2021 were $7.5 million, $10.0 million, and $9.7 million, respectively. Our contract with the VA MVP does not include specific testing turnaround times. Therefore, we have the ability to modulate the volume of samples processed from the VA MVP up or down to complement sample volumes from other customers, which can vary from period to period. As of the end of 2023, our remaining unfulfilled task orders amounted to $7.4 million, which we expect to recognize as revenue within the next 12 months.

Current wording

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

Previous wording

The increase in cost of revenue of 7%, or $3.6 million, was primarily due to higher revenue levels (revenue increased 13% over the same period), partially offset by dedication of more laboratory resources to support sample processing required for clinical evidence generation, which is a non-revenue generating activity and thus reported as R&D expense. Specific components of the increase were a $4.9 million increase in direct material costs due to higher revenue levels, a $2.0 million increase in facilities and equipment costs (partly due to movement of our laboratory from our prior Menlo Park facility to the new Fremont facility), and a $2.0 million increase in laboratory supplies and consumables (enterprise customer orders require more supplies to process as compared to other customer categories); partially offset by a $5.3 million decrease in shared laboratory costs due to greater usage of our laboratory capacity for R&D activities.

Current wording

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

Previous wording

Specific offsetting components of research and development expense include a $5.0 million increase in sample processing costs incurred in our laboratory for product development, collaborations, and clinical evidence generation, and a $2.2 million increase in facilities costs; offset by a $7.3 million decrease in personnel-related costs driven by our reductions in workforce.

Current wording

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

Previous wording

The decrease in selling, general and administrative expenses of 22%, or $14.2 million was primarily due to cost savings from our reductions in workforce initiated in 2023.

Current wording

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

Previous wording

Specific components of the decrease were a $11.7 million decrease in personnel-related costs driven by our reductions in workforce, a $5.1 million decrease in facilities costs as a result of the R&D function and additional lab teams moving into our Fremont facility and consequently receiving a share of such facility costs that were previously allocated to SG&A, and a $1.5 million decrease in professional services; partially offset by a $2.9 million increase in depreciation of office-related fixtures and furniture (driven by our Fremont headquarters), a $1.0 million increase in software and subscriptions costs, and a $0.2 million increase in marketing costs such as trade shows expenses.

Current wording

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

Previous wording

The $8.1 million in restructuring and other charges recognized in 2023 is comprised of $7.5 million in one-time employee termination benefits (including costs related to termination of our former China employees) and $0.6 million of other noncash charges (primarily asset disposals and impairments in connection with the closure of our China operations).

Current wording

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

Previous wording

The increase in interest income was due to increased yields on our investments. Interest expense is the recognition of imputed interest on noninterest bearing loans.

Current wording

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

Previous wording

In November 2023, we entered into an agreement with Tempus to commercialize NeXT Personal Dx in the clinical diagnostics market. In connection with this agreement, we issued to Tempus two warrants to purchase, in the aggregate, up to 9,218,800 shares of our common stock. If Tempus acquires any shares of common stock directly from us other than by exercising the warrants, then the total number of shares issuable upon exercise of the warrants will be reduced by such shares. Because the number of shares issuable upon settlement are subject to adjustment, the warrants are classified as liability instruments and are subject to remeasurement at each balance sheet date, with changes in fair value recognized as other income (expense).

Current wording

In connection with our November 2023 agreement with Tempus, we issued two warrants to purchase, in the aggregate, up to 9,218,800 shares of our common stock ("Tempus Warrants") at an average exercise price of $2.00 per share. If Tempus acquired any shares of common stock directly from us other than by exercising the warrants, then the total number of shares issuable upon exercise of the warrants would have been reduced by such shares. Because the number of shares issuable upon settlement were subject to adjustment, the warrants were classified as liability instruments while outstanding and were subject to remeasurement at each balance sheet date, with changes in fair value recognized as other income (expense), net. In August 2024, Tempus exercised in full the Tempus Warrants for $18.4 million in cash; as such there will be no further noncash gains or losses associated with the Tempus Warrants going forward.

Previous wording

Fair value of the warrants increased by $3.1 million as of December 31, 2023. The increase in fair value, plus the immediate loss of $0.9 million recognized upon issuance, resulted in a $4.0 million expense recognized in other income (expense), net during the year ended December 31, 2023.

Current wording

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

Previous wording

From our inception through December 31, 2023, we have funded our operations primarily from $279.0 million in net proceeds from our follow-on equity offerings in August 2020 and January 2021, $144.0 million in net proceeds from our IPO in June 2019, $89.6 million from issuance of redeemable convertible preferred stock, $3.5 million in net proceeds from our ATM facility (see Note 2, Summary of Significant Accounting Policies), as well as cash from operations and debt financings. As of December 31, 2023, we had cash and cash equivalents of $57.0 million and short-term investments of $57.2 million.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We have based these future funding requirements on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our services or other risks described in this Annual Report on Form 10-K, we may seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing. We filed a sales agreement prospectus in December 2023 pursuant to which we may offer and sell up to $50.0 million of shares of our common stock through our ATM facility. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. Additional capital may not be available on reasonable terms, or at all.

Current wording

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

Previous wording

Our material cash requirements in the short- and long-term consist primarily of variable costs of revenue, operating expenditures, capital expenditures, property leases, and other. We plan to fund our material cash requirements with our existing cash and cash equivalents and short-term investments, which amounted to $114.2 million as of December 31, 2023, as well as anticipated cash receipts from customers. To fund our material cash requirements in the short- and long-term, we may also seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

Current wording

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

Previous wording

Variable costs of revenue. From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of raw materials, laboratory supplies and consumables to be used in the sequencing of customer samples. However, we generally do not have binding and enforceable purchase orders beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. We currently expect spending in this area to increase in 2024 relative to 2023 to support expected higher levels of revenue.

Current wording

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

Previous wording

Operating expenditures. Our primary use of cash relates to employee compensation, spend on professional services, spend related to research and development projects, and other costs related to our research and development, selling, general and administrative functions. We currently expect to decrease our spend in these areas as a result of our workforce reductions initiated in 2023. On a long-term basis, we manage future cash requirements relative to our long-term business plans.

Current wording

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

Previous wording

Capital expenditures. Capital expenditures are expected to decrease from 2023 levels as we have completed significant laboratory capacity additions. Going forward, our capital expenditures are expected to consist primarily of laboratory equipment and computer equipment. We currently expect capital expenditures to be approximately $1 million in 2024 and between $4 million to $6 million in each of the years 2025 and 2026.

Current wording

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

Previous wording

Property leases. Our noncancelable operating lease payments were $78.6 million as of December 31, 2023. The timing of these future payments, by year, can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 7, “Leases.”

Current wording

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

Previous wording

Other. As of December 31, 2023, we have an outstanding noninterest bearing loan that was used to finance the purchase of equipment for our laboratory. We owe a total of $2.5 million, with half of that amount owed in 2024 and the other half in 2025. Additionally, we had an outstanding noninterest bearing loan that was used to finance the purchase of internal use software licenses and related ongoing support. We will make a payment of $0.4 million in September 2024 to pay off this loan. Further discussion of this loan can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 6, “Loans.”

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We have evaluated the performance obligations contained in contracts with customers to determine whether any of the performance obligations are distinct, such that the customers can benefit from the obligations on their own, and whether the obligations can be separately identifiable from other obligations in the contract. For the significant majority of our contracts to date, the customer orders a specified quantity of a sequencing; therefore, the delivery of the ordered quantity per the purchase order is accounted for as one performance obligation. Our contracts include only one performance obligation—the delivery of the sequencing and data analysis services to the customer.

Current wording

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