Guardant Health Inc

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

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

In November 2020, we granted restricted stock units with certain performance metrics, or PSUs, consisting of a performance period of 4 years combined with an additional service period requirement of six months should the vesting criteria be met. As of March 31, 2024, these PSUs had a grant-date fair value of approximately $25.7 million, net of forfeitures, however no compensation expense for these PSUs has been recorded to-date since the achievement of the performance metrics did not meet the criteria for accrual as of March 31, 2024. At each reporting date, we will continue to assess the likelihood of the performance criteria being met and will record a cumulative catch-up adjustment should the achievement of the performance metrics be determined to be probable. For example, had the achievement of the performance metrics been determined to be probable as of March 31, 2024, we would have recorded a total charge of $19.5 million, of which $1.9 million would have been recorded to cost of development services and other, and $7.3 million, $6.2 million and $4.1 million would have been recorded as components of research and development expense, sales and marketing expense, and general and administrative expense, respectively, in the condensed consolidated statements of operations for the three months ended March 31, 2024. In addition, any of these PSUs that remain unvested at the end of the performance period will be forfeited.

Comparison of the Three Months Ended March 31, 2024 and 2023

Revenue

Total revenue was $168.5 million for the three months ended March 31, 2024, compared to $128.7 million for the three months ended March 31, 2023, an increase of $39.8 million, or 31%.

Precision oncology testing revenue increased to $156.2 million for the three months ended March 31, 2024, from $113.4 million for the three months ended March 31, 2023, an increase of $42.8 million, or 38%.

Precision oncology revenue from tests for clinical customers was $125.7 million for the three months ended March 31, 2024, up 37% from $91.5 million for the three months ended March 31, 2023. This increase in clinical testing revenue was driven primarily by an increase in sample volume and increase in reimbursements for our tests. Total tests for clinical customers increased to approximately 46,900 for the three months ended March 31, 2024, from approximately 39,100 for the three months ended March 31, 2023. The increase in reimbursement for our tests for the three months ended March 31, 2024 was attributable to an increase in the Medicare reimbursement rate forour Guardant360 LDT test to $5,000, effective January 1, 2024, and an increase in reimbursement received from commercial payers.

Precision oncology revenue from tests for biopharmaceutical customers was $30.5 million for the three months ended March 31, 2024, up 40% from $21.8 million for the three months ended March 31, 2023. This increase in revenue was driven primarily by an increase in sample volume. Total tests for biopharmaceutical customers increased to approximately 8,450 for the three months ended March 31, 2024, from approximately 6,150 for the three months ended March 31, 2023.

Development services and other revenue decreased to $12.3 million for the three months ended March 31, 2024, from $15.3 million for the three months ended March 31, 2023, a decrease of $3.1 million. This decrease in development services and other revenue was primarily due to a reduction of $1.7 million in royalty revenue and revenue decrease of $1.4 million from our partnership agreements during the three months ended March 31, 2024.

Cost of Revenue

Total cost of revenue was $65.3 million for the three months ended March 31, 2024, compared to $53.1 million for the three months ended March 31, 2023, an increase of $12.2 million, or 23%.

Cost of precision oncology testing was $59.3 million for the three months ended March 31, 2024, compared to $45.1 million for the three months ended March 31, 2023, an increase of $14.2 million, or 31%. This increase in cost of precision oncology testing was primarily attributable to an increase in sample volumes and an increase in average cost per sample due to changes in product mix, resulting in a $10.5 million increase in material costs, a $1.8 million increase in production labor and overhead costs, and a $1.5 million increase in other costs, including costs related to collection kits, freight, professional services and reporting of test results for physicians.

Cost of development services and other was $6.0 million for the three months ended March 31, 2024, compared to $8.0 million for the three months ended March 31, 2023, a decrease of $2.0 million. This decrease in cost of development services and other was primarily due to a reduction in costs associated with our partnership agreements and costs associated with providing screening testing services during the three months ended March 31, 2024.

Operating Expenses

Research and development expense

Research and development expenses were $83.8 million for the three months ended March 31, 2024, compared to $93.1 million for the three months ended March 31, 2023, a decrease of $9.3 million, or 10%. This decrease was primarily due to a decrease of $7.9 million in outside services costs driven by a reduction in clinical study costs, and a decrease of $2.7 million in material costs.

Sales and marketing expense

Selling and marketing expenses were $80.4 million for the three months ended March 31, 2024, compared to $76.1 million for the three months ended March 31, 2023, an increase of $4.3 million, or 6%. This increase was primarily due to an increase of $3.0 million in personnel costs, and an increase of $2.5 million in information technology infrastructure costs.

General and administrative expense

General and administrative expenses were $38.7 million for the three months ended March 31, 2024, compared to $40.4 million for the three months ended March 31, 2023, a decrease of $1.8 million, or 4%. This decrease was primarily due to a decrease of $7.5 million in severance costs related to a workforce reduction incurred in the first quarter of 2023, partially offset by an increase of $3.7 million in stock-based compensation, and an increase of $1.8 million in personnel costs.

Interest income

Interest income was $14.9 million for the three months ended March 31, 2024, compared to $3.1 million for the three months ended March 31, 2023, an increase of $11.8 million, primarily attributable to higher interest rates, and increase in cash, cash equivalents and restricted cash balances.

Interest expense

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

Other income (expense), net

• Not meaningful

Other income (expense), net was a $29.1 million expense for the three months ended March 31, 2024, primarily attributable to $30.1 million of unrealized losses recorded for our marketable equity security investment in Lunit, Inc. during the period. Other income (expense), net was a $1.7 million expense for the three months ended March 31, 2023, primarily due to $5.5 million of impairment recorded for our non-marketable equity security investments and other related assets, partially offset by $3.9 million of unrealized gains recorded for our marketable equity security investment in Lunit, Inc. during the period.

Provision for income taxes

Provision for income taxes was immaterial for the three months ended March 31, 2024, and 2023.

Liquidity and capital resources

We have incurred losses and negative cash flows from operations since our inception, and as of March 31, 2024, we had an accumulated deficit of $2.3 billion. We expect to incur additional operating losses in the near future and our operating expenses will increase as we continue to invest in clinical studies and develop new products, expand our sales organization, and increase our marketing efforts to drive market adoption of our tests. As demand for our tests are expected to continue to increase from physicians and biopharmaceutical companies, we anticipate that our capital expenditure requirements could also increase if we require additional laboratory capacity.

We have funded our operations to date principally from the sale of stock, convertible debt and through revenue from precision oncology testing and development services and other. As of March 31, 2024, we had cash, cash equivalents and restricted cash of $1.1 billion. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to provide liquidity while ensuring capital preservation.

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

If our available cash, cash equivalents and restricted cash and anticipated cash flows from operations are insufficient to satisfy our liquidity requirements because of lower demand for our products as a result of lower than currently expected rates of reimbursement from our customers or other risks described in this Quarterly Report on Form 10-Q and in our Form 10-K for the year ended December 31, 2023, we may seek to sell additional common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products or grant licenses on terms that are not favorable to us. Additional capital may not be available to us on reasonable terms, or at all.

Cash flows

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

Operating activities

Cash used in operating activities during the three months ended March 31, 2024, was $30.3 million, which resulted from a net loss of $115.0 million, partially offset by non-cash charges of $76.8 million, and cash effect of net change in our operating assets and liabilities of $7.9 million. Non-cash charges primarily consisted of $30.1 million of unrealized losses on marketable equity security investment in Lunit, Inc., $27.0 million of stock-based compensation, $10.7 million of depreciation and amortization, and $7.6 million of operating lease costs. The cash effect of net change in our operating assets and liabilities was primarily the result of a $13.2 million increase in accounts payable and accrued liabilities, primarily due to an increase in accrued compensation, a $4.9 million increase in deferred revenue, and a $4.2 million decrease in accounts receivable, net, partially offset by a $8.8 million payment of operating lease liabilities net of receipt of tenant improvement allowance, and a $5.6 million increase in prepaid expenses and other current assets, net.

Cash used in operating activities during the three months ended March 31, 2023 was $74.4 million, which resulted from a net loss of $133.5 million, partially offset by non-cash charges of $40.9 million and cash effect of net change in our operating assets and liabilities of $18.2 million. Non-cash charges primarily consisted of $22.3 million of stock-based compensation, $10.3 million of depreciation and amortization, $7.3 million of operating lease costs, and $5.5 million of impairment on non-marketable equity security investments, partially offset by $3.9 million of unrealized gains on marketable equity security investment in Lunit, Inc. The cash effect of net change in our operating assets and liabilities was primarily the result of a $13.9 million increase in accounts payable and accrued liabilities, primarily due to increased personnel, a $12.3 million decrease in accounts receivable, net, primarily due to increased collections, and a $5.1 million decrease in inventory, net, partially offset by a $7.4 million payment of operating lease liabilities net of receipt of tenant improvement allowance, a $4.1 million decrease in deferred revenue, and a $3.4 million increase in prepaid expenses and other current assets, net.

Investing activities

Cash provided by investing activities during the three months ended March 31, 2024, was $28.1 million, which resulted primarily from maturities of marketable debt securities of $35.0 million, partially offset by purchases of property and equipment of $6.9 million.

Cash provided by investing activities during the three months ended March 31, 2023, was $157.2 million, which resulted primarily from maturities of marketable debt securities of $228.0 million, partially offset by purchases of marketable debt securities of $63.3 million, and purchases of property and equipment of $7.5 million.

Financing activities

Cash used in financing activities during the three months ended March 31, 2024, was $1.1 million, which was primarily attributable to taxes paid related to net share settlement of restricted stock units of $1.5 million, partially offset by proceeds from exercise of stock options of $0.2 million.

Cash used in financing activities during the three months ended March 31, 2023, was $0.9 million, which was primarily attributable to taxes paid related to net share settlement of restricted stock units of $1.0 million, partially offset by proceeds from exercise of stock options of $0.2 million.

Critical accounting policies and estimates

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

Our significant accounting policies are described in more detail in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. During the three months ended March 31, 2024, there were no material changes to our critical accounting policies from those discussed previously.

Recent accounting pronouncements

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