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 and May 2021, we granted restricted stock units with certain performance metrics, or PSUs, consisting of a performance period of 4 years combined with an additional service period requirement of six months should the vesting criteria be met. As of June 30, 2024, these PSUs had a grant-date fair value of approximately $25.6 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 June 30, 2024. We currently expect the achievement of the performance metrics to meet the criteria for accrual in the third quarter of 2024 and currently expect to record a total charge of $23.5 million, of which $2.3 million would be recorded to cost of development services and other, and $9.9 million, $7.4 million and $3.9 million would be 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 September 30, 2024.

Comparison of the Three Months Ended June 30, 2024 and 2023

Revenue

Total revenue was $177.2 million for the three months ended June 30, 2024, compared to $137.2 million for the three months ended June 30, 2023, an increase of $40.1 million, or 29%.

Precision oncology testing revenue increased to $166.5 million for the three months ended June 30, 2024, from $125.2 million for the three months ended June 30, 2023, an increase of $41.3 million, or 33%.

Precision oncology revenue from tests for clinical customers was $130.3 million for the three months ended June 30, 2024, up 30% from $100.2 million for the three months ended June 30, 2023. This increase in clinical testing revenue was driven primarily by an increase in sample volume and increase in reimbursement for our tests. Total tests for clinical customers increased to approximately 49,400 for the three months ended June 30, 2024, from approximately 43,500 for the three months ended June 30, 2023. The increase in reimbursement for our tests for the three months ended June 30, 2024 was primarily attributable to an increase in Medicare reimbursement for our Guardant360 LDT test to $5,000, effective January 1, 2024; and an increase in both Medicare Advantage and commercial payer reimbursement.

Precision oncology revenue from tests for biopharmaceutical customers was $36.2 million for the three months ended June 30, 2024, up 45% from $25.0 million for the three months ended June 30, 2023. This increase in revenue was driven primarily by an increase in sample volume. Total tests for biopharmaceutical customers increased to approximately 10,475 for the three months ended June 30, 2024, from approximately 6,700 for the three months ended June 30, 2023.

Development services and other revenue decreased to $10.7 million for the three months ended June 30, 2024, from $11.9 million for the three months ended June 30, 2023, a decrease of $1.2 million. This decrease in development services and other revenue was primarily due to revenue decrease of $1.7 million from our partnership agreements and a reduction of $1.3 million in royalty revenue, partially offset by revenue increase of $2.0 million due to the timing and amount of milestones related to our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers during the three months ended June 30, 2024.

Cost of Revenue

Total cost of revenue was $72.4 million for the three months ended June 30, 2024, compared to $53.8 million for the three months ended June 30, 2023, an increase of $18.6 million, or 34%.

Cost of precision oncology testing was $65.7 million for the three months ended June 30, 2024, compared to $49.4 million for the three months ended June 30, 2023, an increase of $16.4 million, or 33%. This increase in cost of precision oncology testing was primarily attributable to an increase in sample volumes and an increase in average cost per sample primarily due to changes in product mix, resulting in a $12.8 million increase in material costs, and a $3.1 million increase in production labor and overhead costs.

Cost of development services and other was $6.7 million for the three months ended June 30, 2024, compared to $4.5 million for the three months ended June 30, 2023, an increase of $2.2 million. This increase in cost of development services and other was primarily due to costs associated with our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers, and costs associated with providing screening services during the three months ended June 30, 2024.

Operating Expenses

Research and development expense

Research and development expenses were $83.1 million for the three months ended June 30, 2024, compared to $90.4 million for the three months ended June 30, 2023, a decrease of $7.3 million, or 8%. This decrease was primarily due to a decrease of $7.1 million in outside services costs primarily driven by a reduction in the ECLIPSE clinical study costs, and a decrease of $4.0 million in material costs, partially offset by an increase of $3.2 million in personnel costs.

Sales and marketing expense

Sales and marketing expenses were $81.9 million for the three months ended June 30, 2024, compared to $71.0 million for the three months ended June 30, 2023, an increase of $10.8 million, or 15%. This increase was related to commercial infrastructure buildout and marketing activities to support existing products and Shield product launch, primarily resulting in an increase of $6.0 million in personnel costs, an increase of $2.6 million in information technology infrastructure costs, and an increase of $2.1 million in marketing activity related costs.

General and administrative expense

General and administrative expenses were $40.5 million for the three months ended June 30, 2024, compared to $41.5 million for the three months ended June 30, 2023, a decrease of $1.1 million, or 3%. This decrease was primarily due to a decrease of $8.3 million in legal expenses, partially offset by an increase of $5.3 million in personnel costs, and an increase of $1.8 million in stock-based compensation.

Interest income was $13.9 million for the three months ended June 30, 2024, compared to $6.7 million for the three months ended June 30, 2023, an increase of $7.2 million, primarily attributable to higher interest rates, and increase in cash, cash equivalents and restricted cash balances.

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 June 30, 2024, and 2023.

Other income (expense), net was a $15.1 million expense for the three months ended June 30, 2024, primarily attributable to $15.5 million of unrealized losses recorded for our marketable equity security investment in Lunit, Inc. during the period. Other income (expense), net was a $41.3 million income for the three months ended June 30, 2023, primarily attributable to $64.0 million of unrealized gains recorded for our marketable equity security investment in Lunit, Inc., partially offset by $23.6 million of impairment recorded for our non-marketable equity security investments and other related assets during the period.

Provision for income taxes

Provision for income taxes was immaterial for the three months ended June 30, 2024, and 2023.

Comparison of the Six Months Ended June 30, 2024 and 2023

Revenue

Total revenue was $345.7 million for the six months ended June 30, 2024, compared to $265.9 million for the six months ended June 30, 2023, an increase of $79.9 million, or 30%.

Precision oncology testing revenue increased to $322.7 million for the six months ended June 30, 2024, from $238.6 million for the six months ended June 30, 2023, an increase of $84.1 million, or 35%.

Precision oncology revenue from tests for clinical customers was $256.0 million for the six months ended June 30, 2024, up 34% from $191.7 million for the six months ended June 30, 2023. This increase in clinical testing revenue was driven primarily by an increase in sample volume and increase in reimbursement for our tests. Total tests for clinical customers increased to approximately 96,300 for the six months ended June 30, 2024, from approximately 82,600 for the six months ended June 30, 2023. The increase in reimbursement for our tests for the six months ended June 30, 2024 was primarily attributable to an increase in Medicare reimbursement for our Guardant360 LDT test to $5,000, effective January 1, 2024; and an increase in both Medicare Advantage and commercial payer reimbursement.

Precision oncology revenue from tests for biopharmaceutical customers was $66.7 million for the six months ended June 30, 2024, up 42% from $46.9 million for the six months ended June 30, 2023. This increase in revenue was primarily due to an increase in sample volume. Total tests for biopharmaceutical customers increased to approximately 18,925 for the six months ended June 30, 2024, from approximately 12,850 for the six months ended June 30, 2023.

Development services and other revenue decreased to $23.0 million for the six months ended June 30, 2024, from $27.2 million for the six months ended June 30, 2023, a decrease of $4.2 million. This decrease in development services and other revenue was primarily due to revenue decrease of $3.1 million from our partnership agreements and a reduction of $2.9 million in royalty revenue, partially offset by revenue increase of $3.0 million due to the timing and amount of milestones related to our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers during the six months ended June 30, 2024.

Cost of Revenue

Total cost of revenue was $137.7 million for the six months ended June 30, 2024, compared to $106.9 million for the six months ended June 30, 2023, an increase of $30.8 million, or 29%.

Cost of precision oncology testing was $125.0 million for the six months ended June 30, 2024, compared to $94.5 million for the six months ended June 30, 2023, an increase of $30.6 million, or 32%. This increase in cost of precision oncology testing was primarily attributable to an increase in sample volumes and an increase in average cost per sample primarily due to changes in product mix, resulting in a $23.4 million increase in material costs, a $4.9 million increase in production labor and overhead costs, and a $1.8 million increase in other costs, including costs related to collection kits, freight and professional services.

Cost of development services and other was $12.7 million for the six months ended June 30, 2024, compared to $12.5 million for the six months ended June 30, 2023, an increase of $0.2 million. This increase in cost of development services and other was primarily due to costs associated with our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers, partially offset by costs associated with our partnership agreements during the six months ended June 30, 2024.

Operating Expenses

Research and development expense

Research and development expenses were $166.9 million for the six months ended June 30, 2024, compared to $183.5 million for the six months ended June 30, 2023, a decrease of $16.6 million, or 9%. This decrease was primarily due to a decrease of $15.0 million in outside services costs primarily driven by a reduction in the ECLIPSE clinical study costs, a decrease of $6.6 million in material costs, and a decrease of $2.4 million in information technology infrastructure costs, partially offset by an increase of $5.0 million in personnel costs, and an increase of $2.9 million in stock-based compensation.

Sales and marketing expense

Sales and marketing expenses were $162.3 million for the six months ended June 30, 2024, compared to $147.2 million for the six months ended June 30, 2023, an increase of $15.1 million, or 10%. This increase was related to commercial infrastructure buildout and marketing activities to support existing products and Shield product launch, primarily resulting in an increase of $9.0 million in personnel costs, an increase of $5.1 million in information technology infrastructure costs, and an increase of $2.3 million in marketing activity related costs.

General and administrative expense

General and administrative expenses were $79.1 million for the six months ended June 30, 2024, compared to $82.0 million for the six months ended June 30, 2023, a decrease of $2.8 million, or 3%. This decrease was primarily due to a decrease of $7.6 million in legal expenses, and 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 $7.1 million in personnel costs, and an increase of $5.5 million in stock-based compensation.

Interest income was $28.8 million for the six months ended June 30, 2024, compared to $9.8 million for the six months ended June 30, 2023, an increase of $19.0 million, primarily attributable to higher interest rates, and increase in cash, cash equivalents and restricted cash balances.

Interest expense was primarily attributable to the amortization of debt issuance costs related to our convertible senior notes issued in November 2020, for the six months ended June 30, 2024, and 2023.

Other income (expense), net was a $44.3 million expense for the six months ended June 30, 2024, primarily attributable to $45.5 million of unrealized losses recorded for our marketable equity security investment in Lunit, Inc. during the period. Other income (expense), net was a $39.6 million income for the six months ended June 30, 2023, primarily attributable to $67.9 million of unrealized gains recorded for our marketable equity security investment in Lunit, Inc., partially offset by $29.1 million of impairment recorded for our non-marketable equity security investments and other related assets during the period.

Provision for income taxes

Provision for income taxes was immaterial for the six months ended June 30, 2024, and 2023.

Liquidity and capital resources

We have incurred losses and negative cash flows from operations since our inception, and as of June 30, 2024, we had an accumulated deficit of $2.4 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 June 30, 2024, we had cash, cash equivalents and restricted cash of $1.0 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 six months ended June 30, 2024, was $124.3 million, which resulted from a net loss of $217.6 million, and cash effect of net change in our operating assets and liabilities of $45.8 million, partially offset by non-cash charges of $139.2 million. Non-cash charges primarily consisted of $54.3 million of stock-based compensation, $45.5 million of unrealized losses on marketable equity security investment in Lunit, Inc., $21.3 million of depreciation and amortization, and $15.2 million of operating lease costs. The cash effect of net change in our operating assets and liabilities was primarily the result of a $17.7 million payment of operating lease liabilities net of receipt of tenant improvement allowance, a $15.0 million decrease in accounts payable and accrued liabilities, primarily due to a decrease in accrued compensation, a $11.7 million increase in accounts receivable, net, a $8.7 million increase in prepaid expenses and other current assets, net, and a $5.0 million increase in inventory, net, partially offset by a $12.5 million increase in deferred revenue.

Cash used in operating activities during the six months ended June 30, 2023 was $168.5 million, which resulted from a net loss of $206.3 million, and cash effect of net change in our operating assets and liabilities of $1.9 million, partially offset by non-cash charges of $39.8 million. Non-cash charges primarily consisted of $44.6 million of stock-based compensation, $29.1 million of impairment of non-marketable equity securities and other related assets, $21.0 million of depreciation and amortization, and $14.7 million of operating lease costs, partially offset by $67.9 million of unrealized gains on marketable equity security investment in Lunit, Inc, and $3.1 million of amortization of discount on marketable debt securities. The cash effect of net change in our operating assets and liabilities was primarily the result of a $15.0 million payment of operating lease liabilities net of receipt of tenant improvement allowance, a $8.9 million increase in inventory, net, due to forecasted higher testing volumes, and increased inventory level to offset potential disruption in supply chain, and a $6.1 million decrease in deferred revenue, partially offset by a $16.5 million increase in accounts payable and accrued liabilities, and a $10.7 million decrease in accounts receivable, net.

Investing activities

Cash provided by investing activities during the six months ended June 30, 2024, was $23.0 million, which resulted primarily from maturities of marketable debt securities of $35.0 million, partially offset by purchases of property and equipment of $12.0 million.

Cash used in investing activities during the six months ended June 30, 2023, was $83.9 million, which resulted primarily from purchases of marketable debt securities of $561.3 million, and purchases of property and equipment of $14.0 million, partially offset by maturities of marketable debt securities of $492.7 million.

Financing activities

Cash provided by financing activities during the six months ended June 30, 2024, was $4.8 million, which was primarily attributable to proceeds from issuances of common stock under our employee stock purchase plan of $7.2 million, and proceeds from exercise of stock options of $2.6 million, partially offset by taxes paid related to net share settlement of restricted stock units of $4.8 million.

Cash provided by financing activities during the six months ended June 30, 2023, was $383.0 million, which was primarily attributable to gross proceeds from the follow-on public offering of $402.5 million, and proceeds from issuances of common stock under our employee stock purchase plan of $6.7 million, partially offset by payment of offering costs related to the follow-on public offering of $21.3 million, and taxes paid related to net share settlement of restricted stock units of $5.1 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 and six months ended June 30, 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.