10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

⌧ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                      

Commission file number: 001-37478

NATERA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	01-0894487
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

13011 McCallen Pass Building A Suite 100 Austin, TX	78753
(Address of Principal Executive Offices)	(Zip Code)

(650) 249-9090

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	NTRA	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ⌧     No  ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ⌧    No  ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	⌧	Accelerated filer	◻
Non-accelerated filer	◻	Smaller reporting company	◻
		Emerging growth company	◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ◻    No  ⌧

As of August 1, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 93,783,076.

Natera, Inc.

FORM 10-Q FOR THE QUARTER ENDED June 30, 2021

TABLE OF CONTENTS

		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Part I — Financial Information
	Item 1. Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six months Ended June 30, 2021 and 2020	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six months Ended June 30, 2021 and 2020	7
	Condensed Consolidated Statements of Cash Flows for the Six months Ended June 30, 2021 and 2020	9
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	10
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	48
	Item 4. Controls and Procedures	49
Part II — Other Information
	Item 1. Legal Proceedings	50
	Item 1A. Risk Factors	51
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	51
	Item 3. Defaults Upon Senior Securities	51
	Item 4. Mine Safety Disclosures	51
	Item 5. Other Information	51
	Item 6. Exhibits	50
	Signatures	53

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements, including in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements include information concerning our future results of operations and financial position, strategy and plans, and our expectations for future operations. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as "anticipate," "believe," "continue," "could," "design," "estimate," "expect,"  "intend," "may," "plan," "potential," "predict," "seek," "should," "will," "would" or the negative version of these words and similar expressions.

These forward-looking statements include, but are not limited to, statements concerning the following:

● our expectation that, for the foreseeable future, a significant portion of our revenues will be derived from sales of Panorama and Horizon;

● our ability to increase demand for Panorama and Horizon, including our expectation that Panorama will be adopted for broader use in average-risk pregnancies and for the screening of microdeletions;

● our expectation that Panorama will be adopted for broader use in average-risk pregnancies and for the screening of microdeletions and that third-party payer reimbursement will be available for these applications, including our expectations regarding the results of our SNP based Microdeletion and Aneuploidy RegisTry, or SMART, Study and our expectations that the results from such study may support broader use and reimbursement for the use of Panorama in average risk pregnancies and for microdeletions;

● the extent and duration of the impact of the COVID-19 pandemic on our business, results of operations, stock price, or overall financial condition;

● our expectations of the reliability, accuracy, and performance of our tests, as well as expectations of the benefits of our tests to patients, providers, and payers;

● our ability to successfully develop additional revenue opportunities and expand our product offerings to include new tests;

● our efforts to successfully develop and commercialize our oncology and organ health products;

● the effect of improvements in our cost of goods sold;

● our estimates of the total addressable markets for our current and potential product offerings;

● our ability and expectations regarding obtaining, maintaining and expanding third-party payer coverage of, and reimbursement for, our tests;

● the effect of changes in the way we account for our revenue;

● the scope of protection we establish and maintain for, and developments or disputes concerning, our intellectual property or other proprietary rights;

● our ability to successfully compete in the markets we serve;

● our reliance on collaborators such as medical institutions, contract laboratories, laboratory partners, and other third parties;

● our ability to operate our laboratory facility and meet expected demand, and to successfully scale our operations;

● our reliance on a limited number of suppliers, including sole source suppliers, which may impact our ability to maintain a continued supply of laboratory instruments and materials and to run our tests;

● our expectations of the rate of adoption of Panorama, Horizon and of any of our other current or future tests by laboratories, clinics, clinicians, payers, and patients;

● our ability to complete clinical studies and publish compelling clinical data in peer-reviewed medical publications regarding Panorama and any of our future tests, including our SMART study and our ongoing and planned trials in oncology and transplant rejection;

● our reliance on our partners to market and offer our tests in the United States and in international markets;

● our expectations regarding acquisitions, dispositions and other strategic transactions;

● our expectations regarding the conversion of our outstanding 2.25% convertible senior notes due 2027 in the aggregate principal amount of $287.5 million and our ability to make debt service payments under the Convertible Notes if such Convertible Notes are not converted;

● our ability to fund our working capital requirements;

● the factors that may impact our financial results;

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● anticipated trends and challenges in our business and the markets in which we operate;

● whether we will elect to exercise the option we have to acquire certain assets of a third party and, if exercised, whether that acquisition will be consummated and meet our expectations; and

● our compliance with federal, state, and foreign regulatory requirements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those discussed in Part II, Item 1A, “Risk Factors” in in this report and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on February 26, 2021. Given these uncertainties, you should not place undue reliance on these forward-looking statements. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used in this quarterly report on Form 10-Q, the terms “Natera,” “Registrant,” “Company,” “we,” “us,” and “our” mean Natera, Inc. and its subsidiaries unless the context indicates otherwise.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Natera, Inc.

Condensed Consolidated Balance Sheets

(in thousands except par value and per share amounts)

	June 30,		December 31,
	2021		2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	62,811	$	48,668
Restricted cash		228		187
Short-term investments		517,432		688,606
Accounts receivable, net of allowance of $2,649 in 2021 and $3,080 in 2020		100,130		78,565
Inventory		28,409		20,031
Prepaid expenses and other current assets, net		30,878		26,606
Total current assets		739,888		862,663
Property and equipment, net		48,884		33,348
Operating lease right-of-use assets		48,337		21,399
Other assets		12,847		14,743
Total assets	$	849,956	$	932,153
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	20,307	$	8,096
Accrued compensation		30,842		30,371
Other accrued liabilities		86,143		60,407
Deferred revenue, current portion		10,647		50,125
Short-term debt financing		50,049		50,054
Total current liabilities		197,988		199,053
Long-term debt financing		279,777		202,493
Deferred revenue, long-term portion		23,562		22,805
Operating lease liabilities, long-term portion		49,519		21,246
Other long-term liabilities		—		320
Total liabilities		550,846		445,917
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.0001 par value: 750,000 shares authorized at both June 30, 2021 and December 31, 2020, respectively; 88,498 and 86,223 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		9		9
Additional paid in capital		1,399,659		1,411,286
Accumulated deficit		(1,102,999)		(929,318)
Accumulated other comprehensive gain		2,441		4,259
Total stockholders’ equity		299,110		486,236
Total liabilities and stockholders’ equity	$	849,956	$	932,153

See accompanying notes to the unaudited interim condensed consolidated financial statements.

5

Natera, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except per share data)

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Revenues
Product revenues	$	137,232	$	80,414	$	255,614	$	167,460
Licensing and other revenues		4,794		6,058		38,728		13,024
Total revenues		142,026		86,472		294,342		180,484
Cost and expenses
Cost of product revenues		73,227		42,731		134,549		84,251
Cost of licensing and other revenues		2,885		4,208		8,376		7,666
Research and development		53,752		23,005		93,940		41,230
Selling, general and administrative		127,456		68,188		235,788		133,869
Total cost and expenses		257,320		138,132		472,653		267,016
Loss from operations		(115,294)		(51,660)		(178,311)		(86,532)
Interest expense		(2,075)		(4,038)		(4,148)		(6,502)
Interest and other income, net		1,585		1,924		2,956		3,911
Loss on debt extinguishment		—		(5,848)		—		(5,848)
Loss before income taxes		(115,784)		(59,622)		(179,503)		(94,971)
Income tax expense		(242)		(15)		(376)		(38)
Net loss	$	(116,026)	$	(59,637)	$	(179,879)	$	(95,009)
Unrealized gain (loss) on available-for-sale securities, net of tax		(756)		104		(1,818)		4,851
Comprehensive loss	$	(116,782)	$	(59,533)	$	(181,697)	$	(90,158)
Net loss per share (Note 12):
Basic and diluted	$	(1.32)	$	(0.75)	$	(2.06)	$	(1.21)
Weighted-average number of shares used in computing basic and diluted net loss per share:
Basic and diluted		88,077		79,069		87,387		78,681

See accompanying notes to the unaudited interim condensed consolidated financial statements.

6

Natera, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands)

	Three months ended June 30, 2020
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
	Shares	Amount		Capital		Income		Deficit		Equity
Balance as of March 31, 2020	78,652	$	8	$	988,199	$	5,666	$	(734,946)	$	258,927
Issuance of common stock upon exercise of stock options	680		—		6,981		—		—		6,981
Issuance of common stock under employee stock purchase plan	97		—		3,062		—		—		3,062
Equity component of Convertible Notes, net	—		—		82,873		—		—		82,873
Vesting of restricted stock	288		—		—		—		—		—
Stock-based compensation	—		—		11,957		—		—		11,957
Unrealized gain on available-for sale securities	—		—		—		104		—		104
Net loss	—		—		—		—		(59,637)		(59,637)
Balance as of June 30, 2020	79,717	$	8	$	1,093,072	$	5,770	$	(794,583)	$	304,267

	Six months ended June 30, 2020
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
	Shares	Amount		Capital		Income		Deficit		Equity
Balance as of December 31, 2019	78,005	$	8	$	976,955	$	919	$	(699,171)	$	278,711
Issuance of common stock upon exercise of stock options	1,037		—		10,808		—		—		10,808
Issuance of common stock under employee stock purchase plan	97		—		3,062		—		—		3,062
Equity component of Convertible Notes, net	—		—		82,873		—		—		82,873
Vesting of restricted stock	578		—		—		—		—		—
Stock-based compensation	—		—		19,374		—		—		19,374
Unrealized gain on available-for sale securities	—		—		—		4,851		—		4,851
Cumulative-effect adjustment upon adoption of ASU 2016-13	—		—		—		—		(403)		(403)
Net loss	—		—		—		—		(95,009)		(95,009)
Balance as of June 30, 2020	79,717	$	8	$	1,093,072	$	5,770	$	(794,583)	$	304,267

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	Three months ended June 30, 2021
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
	Shares	Amount		Capital		Income		Deficit		Equity
Balance as of March 31, 2021	87,430	$	9	$	1,356,212	$	3,197	$	(986,973)	$	372,445
Issuance of common stock upon exercise of stock options	207		—		2,259		—		—		2,259
Issuance of common stock under employee stock purchase plan	106		—		6,085						6,085
Vesting of restricted stock units	755		—		—		—		—		—
Stock-based compensation	—		—		35,103		—		—		35,103
Unrealized loss on available-for sale securities	—		—		—		(756)		—		(756)
Net loss	—		—		—		—		(116,026)		(116,026)
Balance as of June 30, 2021	88,498	$	9	$	1,399,659	$	2,441	$	(1,102,999)	$	299,110

	Six months ended June 30, 2021
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
	Shares	Amount		Capital		Income		Deficit		Equity
Balance as of December 31, 2020	86,223	$	9	$	1,411,286	$	4,259	$	(929,318)	$	486,236
Issuance of common stock upon exercise of stock options	782		—		6,829		—		—		6,829
Issuance of common stock under employee stock purchase plan	106		—		6,085		—		—		6,085
Vesting of restricted stock	1,387		—		—		—		—		—
Stock-based compensation	—		—		58,335		—		—		58,335
Unrealized loss on available-for sale securities	—		—		—		(1,818)		—		(1,818)
Cumulative-effect adjustment upon adoption of ASU 2016-13	—		—		(82,876)		—		6,198		(76,678)
Net loss	—		—		—		—		(179,879)		(179,879)
Balance as of June 30, 2021	88,498	$	9	$	1,399,659	$	2,441	$	(1,102,999)	$	299,110

See accompanying notes to the unaudited interim condensed consolidated financial statements.

8

Natera, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2021		2020
	(in thousands)
Operating activities
Net loss	$	(179,879)	$	(95,009)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		5,262		4,036
Premium amortization and discount accretion on investment securities		3,790		1,887
(Gain) loss on investments		(35)		—
Stock-based compensation		58,335		19,374
Non-cash lease expense		5,357		3,880
Amortization of debt discount and issuance cost		610		2,180
Inventory reserve adjustments		612		—
Other non-cash benefits (charges)		117		(341)
Provision for credit losses		63		1,445
Loss on Debt Extinguishment		—		5,848
Changes in operating assets and liabilities:
Accounts receivable		(21,628)		(5,972)
Inventory		(8,991)		(5,410)
Prepaid expenses and other current assets		(7,466)		(5,610)
Other assets		(23)		99
Accounts payable		12,313		(4,684)
Accrued compensation		471		495
Other accrued liabilities		24,374		6,602
Deferred revenue		(38,721)		(4,900)
Net cash used in operating activities		(145,439)		(76,080)
Investing activities
Purchases of investments		(71,054)		(266,139)
Proceeds from sale of investments		31,144		11,500
Proceeds from maturity of investments		205,510		142,815
Purchases of property and equipment, net		(18,891)		(10,130)
Net cash provided by (used in) investing activities		146,709		(121,954)
Financing activities
Proceeds from exercise of stock options		6,829		10,808
Proceeds from issuance of common stock under employee stock purchase plan		6,085		3,062
Proceeds from Convertible Note, net of issuance costs		—		278,317
Loan payment		—		(78,757)
Net cash provided by financing activities		12,914		213,430
Net increase in cash, cash equivalents and restricted cash		14,184		15,396
Cash, cash equivalents and restricted cash, beginning of period		48,855		61,981
Cash, cash equivalents and restricted cash, end of period	$	63,039	$	77,377
Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,538	$	2,976
Non-cash investing and financing activities:
Purchases of property and equipment in accounts payable and accruals	$	4,688	$	255

See accompanying notes to the unaudited interim condensed consolidated financial statements.

9

Natera, Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

1. Description of Business

Natera, Inc. (the "Company") was formed in the state of California as Gene Security Network, LLC in November 2003 and incorporated in the state of Delaware in January 2007. The Company is a diagnostics company with proprietary molecular and bioinformatics technology that it is applying to change the management of disease worldwide. The Company’s cell-free DNA (“cfDNA”) technology combines its novel molecular assays, which reliably measure many informative regions across the genome from samples as small as a single cell, with its statistical algorithms which incorporate data available from the broader scientific community to identify genetic variations covering a wide range of serious conditions with best-in-class accuracy and coverage. The Company’s technology has been proven clinically and commercially in the women’s health space, in which it develops and commercializes non- or minimally-invasive tests to evaluate risk for, and thereby enable early detection of, a wide range of genetic conditions, such as Down syndrome.  The Company is now translating its success in women’s health and applying its core technology to the oncology market, in which it is commercializing a personalized blood-based DNA test to detect molecular residual disease and monitor disease recurrence, as well as to the organ health market, initially with a test to assess kidney transplants for rejection. The Company operates laboratories certified under the Clinical Laboratory Improvement Amendments ("CLIA") providing a host of cell-free DNA-based molecular testing services. The Company determines its operating segments based on the way it organizes its business to make operating decisions and assess performance. The Company operates one segment, the development and commercialization of molecular testing services, applying its proprietary technology in the fields of women’s health, oncology and organ health. The Company also has a subsidiary that operates in the state of Texas.

The Company's product offerings include its Panorama Non-Invasive Prenatal Test ("NIPT") that screens for chromosomal abnormalities of a fetus as well as in twin pregnancies, typically with a blood draw from the mother; Vistara, a single-gene mutations screening test performed to identify single-gene disorders; Horizon Carrier Screening ("HCS") to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; Spectrum Pre-implantation Genetics (“Spectrum”) to evaluate embryos to identify chromosomal anomalies or inherited genetic conditions to improve the chances of a healthy pregnancy during an in vitro fertilization ("IVF") cycle; Anora Miscarriage Test (“Anora”) to rapidly and extensively analyze fetal chromosomes to understand the cause of miscarriage; Non-Invasive Paternity Testing ("PAT"), which is exclusively marketed and sold by a licensee from whom the Company receives a royalty; Signatera, which detects circulating tumor DNA in patients previously diagnosed with cancer to assess molecular residual disease and monitor for recurrence; and Prospera, to assess organ transplant rejection. All testing is available principally in the United States. The Company also offers its Panorama test to customers outside of the United States, primarily in Europe. The Company also offers Constellation, a cloud-based software platform that enables laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch tests based on the Company’s technology. Through the third quarter of 2019, the Company offered Evercord for the collection and storage of newborn cord blood and cord tissue units, which was sold in the third quarter of 2019 to a third-party buyer.

2. Summary of Significant Accounting Policies

During the six months ended June 30, 2021, there were no material changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (filed on February 26, 2021), except as described in Recently Adopted Accounting Pronouncements below.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. The unaudited interim condensed consolidated financial information includes only adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the

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results for the full year or the results for any future periods. The condensed consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements at that date, these financial statements should be read in conjunction with the audited financial statements, and related notes for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021. 

Liquidity Matters

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. The Company had a net loss of $179.9 million for the six months ended June 30, 2021 and an accumulated deficit of $1.1 billion as of June 30, 2021. As of June 30, 2021, the Company had $63.0 million in cash, cash equivalents, and restricted cash, $517.4 million in marketable securities, $50.0 million of outstanding balance of the Credit Line (as defined in Note 10, Debt) including accrued interest, and $287.5 million outstanding principal balance of its 2.25% Convertible Senior Notes (the “Convertible Notes”). In April 2020, the Company used a portion of the net proceeds from the offering of the Convertible Notes to repay its obligations under its 2017 Term Loan with OrbiMed.

While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings.

The Company continues to develop and commercialize future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing. If the Company raises additional funds by issuing equity securities, its stockholders will experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and requires significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to the Company. If the Company is unable to obtain additional financing, it may be required to delay the development and commercialization of its products and significantly scale back its business and operations.

In May 2021, the Company entered into a development and option agreement with a third party that requires the third party to use its best efforts to perform an agreed upon development plan and provides the Company with an exclusive option to purchase the third party’s assets. The Company paid the third party $10 million in the second quarter of 2021 for conducting the development work and for entering into the agreement, and if the Company elects to exercise its option, the Company has agreed to pay the third party an additional $290 million for the designated assets. There is no assurance that the development plan will be successful, or that the Company will elect to exercise its option to purchase the third party’s assets or, if the Company exercises this option, that it will derive the anticipated benefit from the acquisition of these assets.

In April 2019, the Company completed an underwritten equity offering and sold 6,052,631 shares of its common stock at a price of $19 per share to the public. Before offering expenses of $0.6 million, the Company received proceeds of $108.1 million net of the underwriting discount. In October 2019, the Company completed another underwritten equity offering and sold 6,571,428 shares of its common stock at a price of $35 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $216.2 million net of the underwriting discount. In September 2020, the Company completed an additional underwritten equity offering and sold 4,791,665 shares of its common stock at a price of $60.00 per share to the public. Before offering expenses of $0.3 million, the Company received proceeds of $271.0 million net of the underwriting discount. In July 2021, the Company completed an underwritten equity offering and sold 5,175,000 shares of its common stock at a price of $113 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $551.2 million net of the underwriting discount. Based on the Company’s current business plan, the Company believes that its existing cash and marketable securities will be sufficient to meet its anticipated cash requirements for at least 12 months after August 5, 2021.

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Principles of Consolidation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its subsidiaries. The Company established a subsidiary that operates in the state of Texas to support the Company’s laboratory and operational functions. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) in the United States requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts calculated based on the average selling price expected to be received from insurance payors, the operating right-of-use assets and the associated lease liabilities, deferred revenues associated with unsatisfied performance obligations, accrued liability for potential refund requests, the valuation of the Convertible Notes, stock-based compensation, the fair value of common stock, income tax uncertainties, and the expected consideration to be received from contracts with customers. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors, including contractual terms and statutory limits; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Credit Losses

Trade accounts receivable and other receivables. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

The following is a roll-forward of the allowances for credit losses related to trade accounts receivable and other receivables for the six months ended June 30, 2021:

	Six Months Ended
	June 30,
	2021
		(in thousands)
Beginning balance	$	4,220
Provision for credit losses		63
Write-offs		(495)
Total	$	3,788

Available-for-sale debt securities. The amended guidance from ASU 2016-13 requires the measurement of expected credit losses for available-for-sale debt securities held at the reporting date over the remaining life based on historical experience, current conditions, and reasonable and supportable forecasts. The Company evaluated its investment portfolio under the available-for-sale debt securities impairment model guidance and determined the Company’s investment portfolio is composed of low-risk, investment grade securities.

Investments

Investments consist primarily of debt securities such as U.S. Treasuries, U.S. agency and municipal bonds. Management determines the appropriate classification of securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, irrespective of maturity date. Available-for-sale securities are carried at

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fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity.

Risk and Uncertainties

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, and the full extent and duration of the impact of the COVID-19 pandemic on its business, its operations, and the global economy as a whole is not yet known. While the Company’s test volumes and overall average selling prices for its tests increased during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, the Company cannot predict the potential nature, magnitude and duration of the effects of the COVID-19 pandemic on the macroeconomic environment or its business.

Financial instruments that potentially subject the Company to credit risk consist of cash, accounts receivable and investments. The Company limits its exposure to credit loss by placing its cash in financial institutions with high credit ratings. The Company's cash may consist of deposits held with banks that may at times exceed federally insured limits. The Company performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

The Company performs evaluations of financial conditions for insurance carriers, patients, clinics and laboratory partners and generally does not require collateral to support credit sales. For the six months ended June 30, 2021, and 2020, there were no customers exceeding 10% of total revenues on an individual basis. As of June 30, 2021 and December 31, 2020, there were no customers with an outstanding balance exceeding 10% of net accounts receivable. 

Accumulated Other Comprehensive Income (Loss)

Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities.

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Beginning balance	$	3,197	$	5,666	$	4,259	$	919
Net unrealized gain (loss) on available-for-sale securities, net of tax		(756)		104		(1,818)		4,851
Ending balance	$	2,441	$	5,770	$	2,441	$	5,770

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) under its accounting standard codifications or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of accounting standards updates recently issued that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

Recently Adopted Accounting Pronouncements

Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 proposes new disclosure requirements for unrealized gains or losses recognized in other comprehensive income that are attributable to fair value

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changes in assets and liabilities categorized within Level III of the fair value hierarchy, as well as quantitative information about significant unobservable inputs used to value such assets and liabilities. It eliminates the requirement to disclose the reasons for the transfers of assets and liabilities measured in fair value on a recurring basis between Level I and Level II. The Company has adopted this ASU as of January 1, 2020, which did not have a material impact on its consolidated financial statements.

Goodwill - Internal-Use Software

In August 2018, the FASB issued ASU 2018‑15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The Company adopted ASU 2018-15 as of January 1, 2020 using the prospective approach, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05. The standard requires measurement and recognition of expected credit losses for financial assets by requiring an allowance to be recorded as an offset to the amortized cost of such assets. For available-for-sale debt securities, expected credit losses should be estimated when the fair value of the debt securities is below their associated amortized costs. The Company adopted ASU 2016-13, as amended, effective January 1, 2020 using the modified retrospective method and recorded a cumulative-effect adjustment of $0.4 million in retained earnings as of January 1, 2020.

Collaborative Arrangements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company has adopted this standard as of January 1, 2020, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company has adopted this standard as of September 30, 2020, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

In October 2020, ASU 2020-10, Codification Improvements, was issued, which simplifies the existing codification. The guidance includes presentation disclosures for the amount of income tax expense or benefit related to other comprehensive income. ASU 2010-10 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early application of the amendments is permitted for public business entities for any annual or interim period for which financial statements have not been issued. The Company has adopted this standard

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as of January 1, 2021, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Debt

In August 2020, ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) was issued which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company has adopted this standard as of January 1, 2021 using the modified retrospective approach. As a result of the adoption of ASU 2020-06, the Convertible Notes due May 2027 are no longer bifurcated into separate liability and equity components in the March 31, 2021 condensed consolidated balance sheet. Rather, the $287.5 million principal amount of the Company’s Convertible Notes was classified only as a liability in the March 31, 2021 condensed consolidated balance sheet. Upon adoption of ASU 2020-06, an adjustment was recorded to the Convertible Notes liability component, equity component (additional paid-in-capital) and retained earnings. The cumulative effect of the change was recognized as an adjustment to the opening balance of retained earnings at the date of adoption. The comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods. This adjustment was calculated based on the carrying amount of the Convertible Notes as if it had always been treated only as a liability. Further, an adjustment was recorded to the debt discount and issuance costs as if these had always been treated as a contra liability only. Interest expense related to the accretion of the Convertible Notes is no longer recognized.  Interest expense for the Convertible Notes for the three and six months ended June 30, 2021 would have been $2.3 million and $4.6 million higher without the adoption of ASU 2020-06, respectively. As such, net loss from continuing operations attributable to the Company per common share for the three and six months ended June 30, 2021 is $0.02 and $0.05 lower due to the effect of adoption of ASU 2020-06, respectively.

	December 31,		ASU 2020-06		January 1,
	2020		Adoption Adjustment		2021
	(in thousands)
Liabilities
Outstanding Principal	$	287,500	$	—	$	287,500
Unamortized debt discount and issuance cost		(85,007)		76,674		(8,333)
Net carrying amount	$	202,493	$	76,674	$	279,167
Equity
Additional paid-in-capital	$	(1,411,286)	$	82,872	$	(1,328,414)
Accumulated deficit		(929,318)		6,198		(923,120)

New Accounting Pronouncements Not Yet Adopted

In March 2020, ASU 2020-04, Reference Rate Reform (Topic 848) was issued which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationship, and sale or transfer of debt securities classified as held-to-maturity. Early adoption of this ASU is permitted, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company’s financial instruments that are in the scope of ASU 2020-04 include but are not limited to the UBS credit line agreement. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

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­­3. Revenue Recognition

The Company recognizes revenues when, or as, performance obligations in the contracts are satisfied, in the amount reflecting the expected consideration to be received from the goods or services transferred to the customers.

Product Revenues

Product revenues are derived from contracts with insurance carriers, laboratory partners and patients in connection with sales primarily related to prenatal genetic tests. The Company enters into contracts with insurance carriers with primarily payment terms related to tests provided to the patients who have health insurance coverage. Insurance carriers are considered as third-party payers on behalf of the patients, and the patients are considered as the customers who receive genetic test services. Tests may be billed to insurance carriers, patients, or a combination of insurance carriers and patients. Further, the Company sells tests to a number of domestic and international laboratory partners and identifies the laboratory partners as customers provided that there is a test services agreement between the two parties.

A performance obligation represents a promise in a contract to transfer a distinct good or service to a customer, which represents a unit of accounting in accordance with ASC 606. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once the Company has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. A portion of the consideration should be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company evaluates its contracts with insurance carriers, laboratory partners and patients and identifies the performance obligations in those contracts, which are the delivery of the test results.

The total consideration which the Company expects to collect in exchange for the Company’s products is an estimate and may be fixed or variable. Consideration includes reimbursement from both patients and insurance carriers, adjusted for variable consideration related to disallowed cases, discounts, refunds and doubtful accounts, and is estimated using the expected value approach. For insurance carriers with similar reimbursement characteristics, the Company uses a portfolio of relevant historical data to estimate variable consideration and total collections for the Company’s products. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. The consideration expected from laboratory partners usually includes a fixed amount, but it can be variable depending on the volume of tests performed, and the Company determines the variable consideration using the expected value approach. For insurance carriers, laboratory partners and patients, the Company allocates the total consideration to a single performance obligation, which is the delivery of the test results to the customers.

When assessing the total consideration for insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds.

The Company generally bills an insurance carrier, a laboratory partner or a patient upon delivery of test results. The Company also bills patients directly for out-of-pocket costs involving co-pays and deductibles that they are responsible for. Tests billed to insurance carriers and directly to patients usually take an average of nine to twelve months to collect payment, and for tests billed to laboratory distribution partners, the average collection cycle takes approximately two to three months. At times, the Company may or may not get reimbursed for the full amount billed. Further, the Company may not get reimbursed at all for tests performed if such tests are not covered under the insurance carrier’s reimbursement policies or the Company is not a qualified provider to the insurance carrier, or if the tests were not previously authorized.

Product revenue is recognized in an amount equal to the total consideration (as described above) at a point in time when the test results are delivered. The Company reserves certain amounts in other accrued liabilities on the balance sheet in anticipation of requests for refunds of payments previously made by insurance carriers, which are accounted for as reductions in product revenues in the statement of operations and comprehensive loss. During the three months ended June 30, 2021 and 2020, $1.7 million and $0.6 million, respectively, were released from amounts previously held in reserves in other accrued liabilities, and recognized as product revenue. During the six months ended June 30, 2021 and 2020, $3.0

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million and $1.6 million, respectively, were released from amounts previously held in reserves in other accrued liabilities, and recognized as product revenue. The release of amounts reserved were recognized as product revenue within that period.

Licensing and Other Revenues

The Company recognizes licensing revenues from its cloud-based distribution service offering, Constellation, by granting licenses to its licensees to use certain of the Company’s proprietary intellectual properties and cloud-based software and IVD kits. The Company also recognizes revenues from the Signatera research use only (“RUO”) offering and from its agreements with Qiagen LLC, (“Qiagen”), BGI Genomics Co., Ltd. (“BGI Genomics”), and Foundation Medicine, Inc. (“Foundation Medicine”).

Constellation

The laboratory partners with whom the Company enters into a licensing arrangement represent the licensees and are identified as customers. The licensees do not have the right to possess the Company’s software, but rather receive services through the cloud software. These arrangements often include: (i) the delivery of the services through the cloud software, (ii) the necessary support and training, and (iii) the IVD kits to be consumed as tests are processed. The Company does not consider the software as a service, the support or the training as being distinct in the context of such arrangements, and therefore they are combined as a single performance obligation. The software, support and training are delivered simultaneously to the licensees over the term of the arrangement.

The Company bills the majority of licensees, who process the tests in their laboratories, a fixed price for each test processed. Licensing revenues are recognized as the performance obligations are satisfied (i.e., upon the delivery of each test) and reported in licensing and other revenues in the Company’s statements of operations and comprehensive loss.

Signatera

The Company enters into agreements with pharmaceutical companies to utilize the Company’s Signatera tests typically to study new cancer treatments or to validate the outcomes of clinical trials for which the pharmaceutical companies are identified as customers. Such arrangements generally involve performing whole exome sequencing (“WES”) services and the testing of patient samples to detect cancer mutations using its Signatera test. Each test is billable to customers and the personalized cancer profile also makes each test distinct within the context of the contract as customers can exercise control over the test results upon delivery. The Company allocates the contract price to each test using the stand-alone selling price for each service and recognizes the test processing revenue as individual test results are delivered to customers.

Qiagen

In March 2018, the Company entered into a License, Development and Distribution Agreement (the “Qiagen Agreement”) with Qiagen under which the Company granted Qiagen a license to develop, manufacture, distribute and commercialize NGS-based genetic testing assays and sequencing systems utilizing such assays, which incorporate the Company’s proprietary technology. According to the terms of the Qiagen Agreement, the Company is initially entitled to receive an upfront license fee and prepaid royalties totaling $40.0 million, which was fully collected in 2018. All or a portion of the prepaid royalties are refundable in limited circumstances. In addition, the Company was entitled to potential milestone payments from Qiagen upon the successful achievement of certain volume, regulatory and commercial milestones, and tiered royalties of $10.0 million, of which the Company received $5.0 million due December 31, 2018. The Qiagen Agreement has a term of 10 years and expires in March 2028, and it may be terminated earlier in certain circumstances. Upon termination of the Qiagen Agreement, the license granted to Qiagen will also terminate, except in certain limited circumstances. The Company provided to Qiagen standard indemnification protections, which is part of an assurance that the license meets the contract’s specifications and is not an obligation to provide goods or services.  

Effective in March 2020, the Company terminated the Qiagen Agreement. Subsequently, in March 2021, the Company and Qiagen signed a Termination and Settlement Agreement where the Company agreed to refund a net $10

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million as a result of the termination. The remaining $28.6 million of deferred revenue was recognized as other licensing and other revenue in the first quarter of 2021.

BGI Genomics

In February 2019, the Company entered into a License Agreement (the “BGI Genomics Agreement”) with BGI Genomics to develop, manufacture, and commercialize NGS-based genetic testing assays for clinical and commercial use. The BGI Genomics Agreement has a term of ten years and expires in February 2029. According to the BGI Genomics Agreement, the Company is entitled to a total of $50 million, comprised of upfront technology license fees, prepaid royalties relating to future sales of licensed products and performance of assay interpretation services, and milestone payments. During the three months ended June 30, 2019, the Company received $35.6 million, net of withholding taxes, of these amounts. The Company recorded a receivable of $2.5 million upon achieving the first milestone as of June 30, 2019, which was received in January 2021. Also, as required by the BGI Genomics Agreement, in June 2019 the Company prepaid $6.0 million to BGI Genomics for future sequencing services and $4.0 million for future sequencing equipment. These advance payments for equipment and services to be received in future periods aggregating to $10.0 million were recorded in long-term advances on the Company’s Condensed Consolidated Balance Sheet.

Pursuant to the BGI Genomics Agreement, the Company licensed its intellectual property and will provide development services. Following completion of development services, the Company will provide assay interpretation services over the term of the BGI Genomics Agreement. The Company concluded that the license is not a distinct performance obligation as it does not have a stand-alone value to BGI Genomics apart from the related development services. Therefore, license and related development services, for each NIPT and Oncology product, represents a single performance obligation.

The Company is responsible for granting a license to specified intellectual property and performing certain development activities to customize its genetic testing assays for oncology and NIPT for use with BGI Genomics’ sequencing instruments and proprietary technology platform. Revenue associated with these performance obligations is recognized over time using the input method, based on costs incurred to perform the development services, since the level of costs incurred over time best reflect the transfer of development services. Revenue associated with the assay interpretation services will be recognized upon delivery of these services. Funds received in advance are recorded as deferred revenue and will be recognized as the related services are delivered.

The initial transaction price was primarily comprised of license and milestone fees. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. Certain milestone and license fees were constrained and not included in the transaction price due to the uncertainties of research and development. The Company re-evaluates the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The allocation of the transaction price was performed based on standalone selling prices, which are based on estimated amounts that the Company would charge for a performance obligation if it were sold separately.

In accordance with ASC 340-40, any incremental costs incurred to obtain a contract with a customer are required to be capitalized and amortized over the period in which the goods and services are transferred to the customer. The Company has elected to apply a practical expedient under ASC 340-40 to recognize the incremental costs of obtaining a contract as an expense when incurred provided that the amortization period of such costs, if capitalized, is one year or less. The incremental costs incurred in connection with the BGI Genomics arrangement is not material on an accumulated basis and therefore will not be capitalized on the balance sheet but will be expensed as incurred.

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Foundation Medicine, Inc.

In August 2019, the Company entered into a License and Collaboration Agreement (the “Foundation Medicine Agreement”) with Foundation Medicine to develop and commercialize personalized circulating tumor DNA monitoring assays, for use by biopharmaceutical and clinical customers who order Foundation Medicine’s FoundationOne CDx. The Foundation Medicine Agreement has an initial term of five years, expiring in August 2024, with automatic renewals thereafter for successive one-year terms, unless the Foundation Medicine Agreement is earlier terminated in accordance with its terms. Natera and Foundation Medicine will share the revenues generated from both biopharmaceutical and clinical customers in accordance with the terms of the Foundation Medicine Agreement. The Foundation Medicine Agreement provides for approximately $13.3 million in upfront licensing fees and prepaid revenues payable to the Company, and up to approximately $32.0 million in minimum annual payments and payments tied to the Company’s achievement of certain developmental, regulatory, and commercial milestones. As of December 31, 2019, the Company received $16.3 million of these amounts, of which $3.0 million was for achieving certain milestones, and $13.3 million was for licensing fees and prepaid revenue. There was an additional milestone met in May 2021. The Company accrued a $1.0 million milestone payment against accounts receivable and short-term deferred revenue. This milestone was paid in early July 2021. No other payments have been received in the six months ending June 30, 2021.

Pursuant to the Foundation Medicine Agreement, the Company will provide development services in conjunction with granting the use of the Company’s intellectual property. Following completion of those development services, the Company is currently providing RUO assay testing services over the term of the agreement. The Company has concluded that the license is not a distinct performance obligation as it is highly interrelated and interdependent with the related development services. Therefore, license and related development services represent a single performance obligation.

The Company is responsible for providing the technology license and certain development services that are required to customize its proprietary Signatera test to work with Foundation Medicine’s FoundationOne CDx. The intellectual property has been licensed to Foundation Medicine for the customized test. In addition, the Company is responsible for delivering clinical study plans in order to demonstrate efficacy of the customized test which has commenced in the second quarter of 2021. Revenues associated with each of the performance obligations are recognized over time using the input method, based on costs incurred to perform the development services, since the level of costs incurred over time best reflect the transfer of development services. Revenue associated with the assay testing services will be recognized upon delivery of these services. Funds received in advance are recorded as deferred revenue and will be recognized as the related services are delivered. As of June 30, 2021, the Company started providing biopharma RUO services for which partial revenue is recognized from the earlier prepaid $2.5 million royalties. In addition, in the second quarter of 2021, the Company has initiated clinical trial studies for which no revenue has been recognized as of June 30, 2021.

The initial transaction price was primarily comprised of license and milestone fees. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. Certain milestone fees were constrained and not included in the transaction price due to the uncertainties of research and development. The Company re-evaluates the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The allocation of the transaction price was performed based on standalone selling prices, which are based on estimated amounts that the Company would charge for a performance obligation if it were sold separately.

In accordance with ASC 340-40, any incremental costs incurred to obtain a contract with a customer are required to be capitalized and amortized over the period in which the goods and services are transferred to the customer. The Company has elected to apply a practical expedient under ASC 340-40 to recognize the incremental costs of obtaining a contract as an expense when incurred provided that the amortization period of such costs, if capitalized, is one year or less. 

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Disaggregation of Revenues

The Company measures its performance results primarily based on revenues recognized from the three categories described below. The following table shows disaggregation of revenues by payer types:

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
(in thousands)
Insurance carriers	$	118,396	$	67,630	$	218,795	$	138,302
Laboratory and other partners		15,599		13,041		60,134		28,724
Patients		8,031		5,801		15,413		13,458
Total revenues	$	142,026	$	86,472	$	294,342	$	180,484

The following table presents total revenues by geographic area based on the location of the Company’s payers:

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
(in thousands)
United States	$	134,814	$	80,757	$	279,771	$	167,488
Americas, excluding U.S.		992		721		1,805		1,503
Europe, Middle East, India, Africa		4,265		3,584		8,724		7,060
Asia Pacific and Other		1,955		1,410		4,042		4,433
Total revenues	$	142,026	$	86,472	$	294,342	$	180,484

The following table summarizes the Company’s beginning and ending balances of accounts receivable and deferred revenues:

	Balance at		Balance at
	June 30,		December 31,
(in thousands)	2021		2020
Assets:
Accounts receivable	$	100,130	$	78,565
Liabilities:
Deferred revenue, current portion	$	10,647	$	50,125
Deferred revenue, long-term portion		23,562		22,805
Total deferred revenues	$	34,209	$	72,930

The following table shows the changes in the balance of deferred revenues during the period:

	Deferred
	Revenues
	(in thousands)
Balance at December 31, 2020	$	72,930
Increase in deferred revenues		3,474
Refunds of revenues previously deferred		(10,000)
Revenue recognized during the period that was included in deferred revenues at the beginning of the period		(30,839)
Revenue recognized from performance obligations satisfied within the same period		(1,356)
Balance at June 30, 2021	$	34,209

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During the six months ended June 30, 2021, revenue recognized that was included in the deferred revenue balance at the beginning of the period totaled $30.8 million, with approximately a net $2.0 million related to BGI Genomics and Foundation Medicine, and $28.6 million related to Qiagen, with the remaining $0.2 million related to genetic testing services. The current portion of deferred revenue includes $3.2 million from the BGI Genomics Agreement and $5.1 million from the Foundation Medicine Agreement.

4. Fair Value Measurements

The Company's financial assets and liabilities carried at fair value are comprised of investment assets that include money market and investments.

The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

Level I: Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access.

Level II: Observable market-based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves.

Level III: Inputs that are unobservable data points that are not corroborated by market data.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis:

	June 30, 2021								December 31, 2020
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Money market deposits	$	5,509	$	—	$	—	$	5,509	$	28,990	$	—	$	—	$	28,990
U.S. Treasury securities		434,639		—		—		434,639		597,744		—		—		597,744
Corporate bonds and notes		—		14,248		—		14,248		—		12,328		—		12,328
Municipal securities		—		68,545		—		68,545		—		78,534		—		78,534
Total financial assets	$	440,148	$	82,793	$	—	$	522,941	$	626,734	$	90,862	$	—	$	717,596

Fair Value of Long-Term Debt:

As of June 30, 2021, the estimated fair value of the Convertible Notes, which are not presented at fair value on the Condensed Consolidated Balance Sheets as of June 30, 2021, was $871.0 million and was based upon observable, Level 2 inputs, including pricing information from recent trades of the Convertible Notes (see Note 10, Debt).

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5. Financial Instruments

The Company elected to invest a portion of its cash assets in conservative, income earning, and liquid investments. Cash equivalents and investments, all of which are classified as available-for-sale securities, consisted of the following:

	June 30, 2021								December 31, 2020
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
	(in thousands)
Money market deposits	$	5,509	$	—	$	—	$	5,509	$	28,990	$	—	$	—	$	28,990
U.S. Treasury securities (1)		432,610		2,180		(151)		434,639		594,252		3,512		(20)		597,744
Corporate bonds and notes (1)		14,284		2		(38)		14,248		12,331		2		(5)		12,328
Municipal securities		68,097		505		(57)		68,545		77,764		796		(26)		78,534
Total	$	520,500	$	2,687	$	(246)	$	522,941	$	713,337	$	4,310	$	(51)	$	717,596
Classified as:
Cash equivalents (2)							$	5,509							$	28,990
Short-term investments								517,432								688,606
Total							$	522,941							$	717,596

(1) Per the Company’s investment policy, all debt securities are classified as short-term investments irrespective of holding period.  

(2) Cash equivalents includes cash sweep accounts and U.S. Treasury money market mutual funds.

The Company invests in U.S. Treasuries, U.S. agency and high quality municipal bonds which mature at par value and are all paying their coupons on schedule. The Company has therefore concluded there is currently no other than temporary impairment of its investments and will continue to recognize unrealized gains and losses in other comprehensive income (loss). During the six months ended June 30, 2021 and 2020, the Company sold $31.1 million and $11.5 million of investments, respectively. During the six months ended June 30, 2021, the amount of gross realized gains and realized losses upon sales of investments were insignificant. The Company uses the specific investment identification method to calculate realized gains and losses and amounts reclassified out of other comprehensive income to net income. As of June 30, 2021, the Company had 23 investments in an unrealized loss position in its portfolio. An allowance for credit losses was not necessary for the second quarter of 2021 since the investments are low risk, investment grade securities. The Company has assessed the unrealized loss position for available-for-sale debt securities for which an allowance for credit losses has not been recorded. The fair value for investment securities at an unrealized loss position as of June 30, 2021 was $158.8 million. The aggregate amount of unrealized losses of these securities were not significant, and the impact of the securities in a continuous loss position to the condensed consolidated statements of operations and comprehensive loss were not material as of June 30, 2021.

The following table summarizes the Company’s portfolio of available-for-sale securities by contractual maturity as of June 30, 2021:

	June 30, 2021
	Amortized Cost		Fair Value
	(in thousands)
Less than or equal to one year	$	213,114	$	213,493
Greater than one year but less than five years		301,877		303,939
Total	$	514,991	$	517,432

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6. Balance Sheet Components

Property and Equipment, net

The Company’s property and equipment consisted of the following:

		June 30,		December 31,
	Useful Life	2021		2020
		(in thousands)
Machinery and equipment	3-5 years	$	58,432	$	51,001
Furniture and fixtures	3 years		1,376		1,376
Computer equipment	3 years		2,772		2,428
Capitalized software held for internal use	3 years		7,582		7,417
Leasehold improvements	Lesser of useful life or lease term		14,952		14,810
Construction-in-process			19,087		6,370
			104,201		83,402
Less: Accumulated depreciation and amortization			(55,317)		(50,054)
Total Property and Equipment, net		$	48,884	$	33,348

All of the Company’s long-lived assets are located in the United States.

During the six months ended June 30, 2021, the increase in net property and equipment was due to purchases of new equipment for the Company’s laboratories located in Texas and California to expand testing capabilities, offset by depreciation expense of $5.3 million recorded in the six months ended June 30, 2021. The Company did not incur an impairment charge during the six months ended June 30, 2021.

Accrued Compensation

The Company’s accrued compensation consisted of the following:

	June 30,		December 31,
	2021		2020
	(in thousands)
Accrued paid time off	$	2,439	$	2,260
Accrued commissions		14,104		12,686
Accrued bonuses		7,984		9,635
Other accrued compensation		6,315		5,790
Total accrued compensation	$	30,842	$	30,371

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Other Accrued Liabilities

The Company’s other accrued liabilities consisted of the following:

	June 30,		December 31,
	2021		2020
	(in thousands)
Reserves for refunds to insurance carriers		22,301	$	17,366
Accrued charges for third-party testing		10,422		5,141
Testing and laboratory materials from suppliers		7,805		2,720
Marketing and corporate affairs		5,374		3,325
Legal, audit and consulting fees		4,364		4,189
Accrued shipping charges		1,276		1,604
Sales tax payable		1,501		1,723
Accrued third-party service fees		2,482		2,355
Clinical trials and studies		2,419		2,353
Operating lease liabilities, current portion		6,330		7,300
Fixed asset purchases		1,740		1,691
Other accrued interest		1,078		1,078
Deposits held for sublease		10		—
Other accrued expenses		19,041		9,562
Total other accrued liabilities	$	86,143	$	60,407

Reserves for refunds to insurance carriers include overpayments from and amounts to be refunded to insurance carriers, and additional amounts that the Company estimates for potential refund requests during the period. When the Company releases these previously accrued amounts, they are recognized as product revenues in the statements of operations and comprehensive loss.

The following table summarizes the reserve balance and activities for refunds to insurance carriers for the six months ended June 30, 2021:

	June 30,		June 30,
	2021		2020
	(in thousands)
Beginning balance	$	17,366		9,410
Additional reserves		10,960		8,563
Refunds to carriers		(3,054)		(3,251)
Reserves released to revenue		(2,971)		(1,622)
Ending balance	$	22,301	$	13,100

7. Leases

Operating Leases

In September 2015, the Company’s subsidiary entered into a long-term lease agreement for laboratory and office space totaling approximately 94,000 square feet in Austin, Texas. The lease term is 132 months beginning in December 2015 and expiring in November 2026 with monthly payments beginning in December 2016.

In October 2016, the Company entered into a lease directly with its landlord for laboratory and office spaces at its facilities located in San Carlos, California. The Company currently occupies approximately 113,000 square feet comprised of two office spaces (the “First Space” and the “Second Space”). The First Space covers approximately 88,000 square feet, and the Second Space totals approximately 25,000 square feet. The term of this lease is approximately 84 months and expires in October 2023. This lease contains an option to renew the lease term for five years, but the fair

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market rent amount upon renewal is not available from the landlord. In January 2021, the Company entered into an amendment of the lease to extend the term for 48 months to October 2027. The combined annual rent for the First Space and Second Space will be $9.3 million commencing in October 2023.

The Company entered into a lease agreement commencing June 2018 for its cord blood tissue storage facility in Tukwila, Washington that covers approximately 10,000 square feet. The lease term is 62 months expiring in July 2023. The Company has the option to extend this lease for five years, and the fair market rent upon renewal is not determinable. However, since the Company sold its business related to cord blood and tissue storage in September 2019, the Company has subleased the facility and does not intend to exercise its option to renew the facility upon expiration.

In addition, the Company entered into a sublease agreement in June 2019 with a third party to sublease 25,879 square feet of space located on the third floor of the San Carlos, California building while maintaining its primary obligation as the intermediate lessor. The term of this lease is approximately 48 months commencing in October 2019 and expiring in September 2023. The annual lease payment starts at $1.9 million and will escalate annually commencing in October 2020. In February 2021, the Company entered into an amendment of the San Carlos sublease agreement whereas the third party will surrender 25,879 rentable square feet by the end of the year. For the six months ended June 30, 2021, the Company had noncash investing activities of $30.1 million primarily related to additional right-of-use assets of which $29.7 million was a result of the San Carlos lease extension which was accounted for as a modification under ASC 842.

The Company entered into a lease agreement in November 2020 to lease 11,395 square feet of space located in South San Francisco, California over a 36-month term. The premises will be used for general office, laboratory and research use. The annual lease payment starts at $0.9 million and will escalate annually commencing in December 2021.

The Company has also historically entered into leases of individual workspaces at various locations on both a month-to-month basis without an established lease term, and more recently for certain locations, have committed to terms approximating three to five years. For the facilities without a committed lease term, the Company has elected to not recognize them as the right-of-use assets on the balance sheet as they are all considered short-term leases. For individual workspaces where the committed lease term exceeds one year, the Company has recorded a right-of-use asset.

The operating lease right-of-use assets are classified as noncurrent assets in the balance sheet. The corresponding lease liabilities are separated into current and long-term portions as follows:

	June 30,
	2021
		(in thousands)
Operating lease liabilities, current portion included in other accrued liabilities	$	6,330
Operating lease liabilities, long-term portion		49,519
Total operating lease liabilities	$	55,849

The initial recognition of the operating lease liabilities was measured as the present value of the future minimum lease payments using a discount rate determined as of January 1, 2019. The operating right-of-use assets was calculated as the operating lease liabilities discounted at the present value, less the amount of unamortized tenant improvement allowance and deferred rent. The discount rate used was the Company’s incremental borrowing rate given that the implicit rate to each lease was not readily determinable. In accordance with ASC 842, the incremental borrowing rate was estimated as the annual percentage yield resulting from a corporate debt financing over a loan term approximating the remaining term of each lease, with the effect of certain credit risk rating. As of June 30, 2021, the weighted-average remaining lease term was 3.85 years and the weighted-average discount rate was 7.49%.

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The Company continues to recognize lease expense on a straight-line basis. The lease expense includes the amortization of the right-of-assets with the associated interest component estimated by applying the effective interest method. For the three months ended June 30, 2021 and 2020, total lease expense of $2.7 million and $1.9 million was recognized in the condensed statements of operations and comprehensive loss, respectively. For the six months ended June 30, 2021 and 2020, total lease expense of $5.4 million and $3.9 million was recognized in the condensed statements of operations and comprehensive loss, respectively. Cash paid for amounts in the measurement of operating lease liabilities totaled $2.5 million and $2.2 million for the three months ended June 30, 2021 and 2020, respectively.  Cash paid for amounts in the measurement of operating lease liabilities totaled $5.0 million and $4.4 million for the six months ended June 30, 2021 and 2020, respectively.

The present value of the future annual minimum lease payments under all non-cancellable operating leases as of June 30, 2021 are as follows:

	Operating Leases
	(in thousands)
Year ending December 31:
2021 (remaining 6 months)	$	5,086
2022		10,404
2023		11,071
2024		11,889
2025		12,186
2026 and thereafter		20,064
		70,700
Less: imputed interest		(14,851)
Operating lease liabilities	$	55,849

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8. Commitments and Contingencies

Legal Proceedings

From time to time, the Company is involved in disputes, litigation, and other regulatory or administrative  actions, including those with respect to intellectual property, employment, testing, billing, reimbursement  and other matters. Such actions may include allegations of negligence, products/professional liability or other legal claims, and could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. The Company is aggressively defending and/or prosecuting its current litigation matters, but cannot provide any assurance as to the ultimate outcome or that an adverse resolution would not have a material adverse effect on its financial condition and results of operations. There are many uncertainties associated with any litigation and these actions or other third party claims against the Company, including by governmental entities, or by the Company against third parties, may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If this were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected.

The Company assesses legal contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. When evaluating legal contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation or other matters may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of its potential liability. During the periods presented, the Company has not recorded any accrual for loss contingencies associated with such legal proceedings or other matters, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount or range of any possible loss is reasonably estimable.

Intellectual Property Litigation Matters.

The Company is involved in patent litigation against CareDx, Inc. (“CareDx”), in the United States District Court for the District of Delaware (“CareDx’s Patent Case”). CareDx alleges, in a complaint filed jointly with the Board of Trustees of the Leland Stanford Junior University in March 2019 and amended in March 2020, that the Company infringed three patents. The complaint seeks unspecified damages and injunctive relief. The Company has also alleged infringement by CareDx of two of the Company’s patents, seeking unspecified damages and injunctive relief. The cases have been consolidated and the Court has set a trial date of April 25, 2022. The cases are currently stayed pending a ruling on the Company’s motion for summary judgment challenging the patent eligibility of the asserted patents.

The Company has filed suit against ArcherDX, Inc. (“ArcherDX”), in the United States District Court for the District of Delaware, alleging, in complaints filed in January, April, and August of 2020, which cases were consolidated in September 2020, that certain ArcherDX DNA oncology products infringe five of the Company’s patents. In June 2020, ArcherDX filed a motion to dismiss aspects of the Company’s case, including to invalidate several of the Company’s asserted patents. That motion was denied in its entirety in October 2020. In January 2021, the Company filed a second amended complaint naming an additional Archer DX entity, ArcherDx LLC, and Invitae Corp. as defendants. The Company is seeking unspecified monetary damages and injunctive relief. A jury trial is set for May 16, 2022.

In May 2021, Invitae Corp. (“Invitae”) filed a complaint against the Company alleging infringement of one patent and seeking monetary damages and injunctive relief. In June 2021, the Company filed a motion to dismiss Invitae’s complaint in its entirety.

The Company is the subject of a lawsuit filed against it by Ravgen, Inc. (“Ravgen”) in June 2020 in the United States District Court for the Western District of Texas, alleging infringement of two Ravgen patents. The complaint seeks monetary damages and injunctive relief. Trial is set for December 13, 2021.

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The Company filed suit against Progenity, Inc. (“Progenity”), in June 2020 in the United States District Court for the Western District of Texas and in the United States District Court for the Northern District of Texas, in each case alleging that Progenity’s NIPT test infringes six of the Company’s patents. The complaints seek treble damages and injunctive relief. In July 2020, Progenity filed suit against the Company in the United States District Court for the Southern District of California, seeking declaratory judgment of non-infringement of the Company’s asserted patents. Progenity also petitioned the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and Trademark Office for inter partes review of all of the Company’s asserted patents. The PTAB instituted review of three of the petitions and set trial for March 7, 2022, and denied institution of the other three petitions. On August 3, 2021, the parties entered into a settlement agreement to settle the matters described above.

In October 2020, the Company filed suit against Genosity Inc. (“Genosity”), in the United States District Court for the District of Delaware, alleging that various Genosity oncology products infringe one of the Company’s patents and seeking unspecified monetary damages and injunctive relief. In March 2021, the Company filed a motion to dismiss certain of Genosity’s affirmative defenses and a counterclaim.

In January 2021, the Company filed suit against Inivata, Inc. and Inivata Ltd. (collectively “Inivata”) in the United States District Court for the District of Delaware, alleging that various Inivata oncology products infringe two of the Company’s patents. The complaint seeks unspecified monetary damages and injunctive relief. In April 2021, Inivata filed a motion to dismiss the Company’s complaint.

Other Litigation Matters.

In August 2019, a suit was filed against the Company in the Circuit Court of Cook County, Illinois by a patient alleging claims relating to a discordant test result and seeking monetary damages. The suit was dismissed in June 2021.

The Company is also the subject of a lawsuit filed by CareDx against the Company in April 2019 in the United States District Court for the District of Delaware, alleging false advertising, trademark disparagement, unfair competition, and unfair or deceptive trade practices based on statements describing studies that concern the Company’s technology and CareDx’s technology (“CareDx’s Advertising Case”). The complaint seeks unspecified damages and injunctive relief. In May 2019, the Company filed a motion to dismiss the entirety of CareDx’s Advertising Case for failure to state a claim, following which in February 2020, CareDx filed an amended complaint withdrawing its trademark disparagement claim. Also in February 2020, the Company filed a counterclaim against CareDx in the United States District Court for the District of Delaware, alleging false advertising, unfair competition and deceptive trade practices and seeking unspecified damages and injunctive relief. The parties cross-moved for partial summary judgment, which was denied in April 2021. A jury trial is set for October 25, 2021.

The Company is involved in litigation against Guardant, Inc. (“Guardant”). On or about May 27, 2021, Guardant filed suit against the Company in the United States District Court of the Northern District of California alleging false advertising and related claims and seeking unspecified damages and injunctive relief.  On or about May 28, 2021, the Company filed suit against Guardant in the Western District of Texas, alleging false advertising and related claims. The Company has voluntarily dismissed its Texas suit against Guardant. In the California action, the Company has answered Guardant’s complaint and has asserted its claims as counterclaims, seeking unspecified damages and injunctive relief. On August 3, 2021, Guardant moved to dismiss the Company’s counterclaims. 

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Director and Officer Indemnifications

As permitted under Delaware law, and as set forth in the Company’s Amended and Restated Certificate of Incorporation and its Amended and Restated Bylaws, the Company indemnifies its directors, executive officers, other officers, employees and other agents for certain events or occurrences that may arise while in such capacity. The maximum potential amount of future payments the Company could be required to make under this indemnification is unlimited; however, the Company has insurance policies that may limit its exposure and may enable it to recover a portion of any future amounts paid. Assuming the applicability of coverage, the willingness of the insurer to assume coverage, and subject to certain retention, loss limits and other policy provisions, the Company believes any obligations under this indemnification would not be material, other than an initial $2.5 million for securities related claims. However, no assurances can be given that the covering insurers will not attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case the Company may incur substantial liabilities as a result of these indemnification obligations.  

Third-Party Payer Reimbursement Audits

From time to time, the Company receives recoupment requests from third-party payers for alleged overpayments. The Company disagrees with the contentions of pending requests and/or has recorded an estimated reserve for the alleged overpayments.  

Contractual Commitments

The following table sets forth the material contractual commitments as of June 30, 2021 with a remaining term of at least one year:

Party	Commitments		Expiry Date
		(in thousands)
Material supplier	$	14,207	June 2026
Application service providers		31,853	March 2026
Other material suppliers		16,662	Various
Total	$	62,722

9. Stock-Based Compensation

2015 Equity Incentive Plan

General.   The Company’s board of directors adopted its 2015 Equity Incentive Plan (the “2015 Plan”) in June 2015. The 2015 Plan replaced all of its prior stock plans.

Share Reserve.   The initial number of shares of the Company’s common stock available for issuance under the 2015 Plan was 3,451,495 shares. The number of shares reserved for issuance under the 2015 Plan will be increased automatically on the first business day of each fiscal year, commencing in 2016, by a number equal to the smallest of:

● 3,500,000 shares;

● 4% of the shares of common stock outstanding on the last business day of the prior fiscal year; or

● the number of shares determined by the Company’s board of directors.

Stock options vest as determined by the compensation committee. In general, they will vest over a four-year period following the date of grant. Stock options expire at the time determined by the compensation committee but in no event more than ten years after they are granted. These awards generally expire earlier if the participant's service terminates earlier.

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Restricted Shares and Stock Units.    Restricted shares and stock units may be awarded under the 2015 Plan in return for any lawful consideration, and participants who receive restricted shares or stock units generally are not required to pay cash for their awards. In general, these awards will be subject to vesting. Vesting may be based on length of service, the attainment of performance-based milestones or a combination of both, as determined by the compensation committee.

Performance-based Awards

The Company grants certain senior-level executives performance stock options and units which vest based on either market and time-based service conditions or performance and time-based service conditions, which are referred to herein as performance-based awards. The Company assessed the performance-based awards with the appropriate valuation method and has recognized the applicable stock-based compensation expense. The following table summarizes the performance-based awards as of June 30, 2021:

Period Granted	Options Granted	RSUs Granted	Options Vested	RSUs Vested	Milestone	Valuation Method
(in thousands)
Q1 2019	200	300	169	260	(1)	Monte-Carlo Simulation
Q2 2019	—	188	—	81	(2)	Fair Market Value
Q3 2019	—	50	—	38	(1)	Monte-Carlo Simulation
Q1 2020	150	300	94	216	(1)	Monte-Carlo Simulation
Q1 2020	—	436	—	404	(3)	Fair Market Value
Q1 2020	129	—	129	—	(3)	Black-Scholes-Merton
Q2 2020	—	21	—	21	(3)	Fair Market Value
Q3 2020	10	—	10	—	(4)	Black-Scholes-Merton
Q3 2020	—	27	—	13	(3)	Fair Market Value
Q4 2020	—	32	—	6	(1)	Monte-Carlo Simulation
Q4 2020	—	22	—	2	(5)	Fair Market Value
Q1 2021	150	125	—	—	(1)	Monte-Carlo Simulation
Q1 2021	—	279	—	10	(3)	Fair Market Value
Q2 2021	163	—	—	—	(1)	Monte-Carlo Simulation
Q2 2021	29	—	—	—	(3)	Black-Scholes-Merton
Q2 2021	—	7	—	—	(3)	Fair Market Value

________________________________

(1) The awards will vest based on the achievement of certain values of the Company’s common stock at multiple thresholds within certain periods and are contingent upon the completion of requisite service through the date of such vesting.

(2) The vesting of the awards will be triggered after the end of the achievement milestone, as measured by the Company.

(3) The awards will vest based on achievement of a revenue target and are contingent upon the completion of requisite service through the date of such vesting.

(4) The awards vest based on achievement of a reimbursement target.

​
(5) The awards will vest based on achievement of certain revenue and recruiting targets.

The Company has recognized $19.0 million and $30.0 million in stock-based compensation for performance-based awards for the three and six months ended June 30, 2021, respectively. The Company has recognized $3.8 million and $5.2 million in stock-based compensation for performance-based awards for the three and six months ended June 30, 2020, respectively.

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   The Company estimated the fair value of performance-based awards with market conditions using a Monte-Carlo simulation model with the following inputs for the period ended June 30, 2021:

	June 30,
	2021
Risk-free interest rate		0.80	%	—	1.42	%
Expected dividend yield					0.00	%
Expected volatility					60	%
Expected term (years)		7.25		—	10.00

Employee Stock Purchase Plan

During the period ended June 30, 2021, there have not been any changes to the Company’s 2015 Natera, Inc. Employee Stock Purchase Plan (the “ESPP”) as disclosed in Form 10-K for the fiscal year ended December 31, 2020.  The Company has made 2,940,084 shares available for issuance under the Plan as of June 30, 2021, a number that is automatically increased by the least of (i) 1% of the total number of shares of common stock actually issued and outstanding on the last business day of the prior fiscal year, (ii) 880,000 shares of common stock (subject to certain adjustments pursuant to Subsection (c) below), or (iii) a number of shares of common stock determined by the Company’s board of directors.

The first offering period of 2021 started on November 1, 2020 and ended on April 30, 2021, and 106,435 shares were purchased for proceeds of $6.1 million. The second offering period of 2021 began on May 1, 2021 and will end on October 31, 2021. As of June 30, 2021, no shares have been purchased in the second offering period.

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Stock Options

The following table summarizes option activity for the six months ended June 30, 2021:

	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
(in thousands, except for contractual life and exercise price)	Grant	Shares	Price		Life	Value
					(in years)
Balance at December 31, 2020	3,197	6,707	$	11.19	6.04	$	592,468
Additional shares authorized	3,446	—
Options granted	(390)	390	$	104.01
Options exercised	—	(782)	$	8.73
Options forfeited/cancelled	31	(31)	$	13.80
RSUs granted	(1,355)	—
RSUs forfeited/cancelled	164	—
Balance at June 30, 2021	5,093	6,284	$	17.25	5.93	$	605,986
Exercisable at June 30, 2021		4,823	$	9.93	5.23	$	499,683
Vested and expected to vest at June 30, 2021		6,194	$	16.90	5.90	$	599,432

Restricted Stock Units

The following table summarizes RSU activity for the six months ended June 30, 2021:

		Weighted-
		Average
		Grant Date
(in thousands, except for grant date fair value)	Shares	Fair Value
Balance at December 31, 2020	4,188	$	34.02
Granted	1,355	$	103.67
Vested	(1,387)	$	26.50
Cancelled/forfeited	(164)	$	41.33
Balance at June 30, 2021	3,992	$	59.73

Stock-Based Compensation Expense

Stock based compensation is related to stock options and RSUs granted to the Company’s employees and is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards on a straight-line basis. No compensation cost is recognized when the requisite service has not been met and the awards are therefore forfeited.

Employee stock-based compensation expense was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Non-employee stock-based compensation expense was not adjusted for estimated forfeitures up until the occurrence of the actual forfeiture of the associated awards.

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The following tables present the effect of employee and non-employee stock-based compensation expense on selected statements of operations line items for the three and six months ended June 30, 2021 and 2020.

	Three months ended June 30,
	2021						2020
	Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	1,275	$	—	$	1,275	$	441	$	—	$	441
Research and development		6,276		340		6,616		2,631		282		2,913
Selling, general and administrative		27,146		66		27,212		8,527		76		8,603
Total	$	34,697	$	406	$	35,103	$	11,599	$	358	$	11,957

	Six months ended June 30,
	2021						2020
	Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	1,983	$	—	$	1,983	$	755	$	—	$	755
Research and development		9,926		564		10,490		4,313		442		4,755
Selling, general and administrative		45,751		111		45,862		13,779		85		13,864
Total	$	57,660	$	675	$	58,335	$	18,847	$	527	$	19,374

As of June 30, 2021, approximately $207.4 million of unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested option awards and RSUs will be recognized over a weighted-average period of approximately 2.8 years.

Valuation of Stock Option Grants to Employees and Non-employees

The Company utilizes the Black-Scholes option pricing model when estimating the fair value of stock options. For the three six months ended June 30, 2021, the following valuation assumptions were applied on both the employee and non-employee options. In the same period of the prior year, the valuation assumptions as follows were only used for stock options granted to employees.

	Three months ended June 30,								Six months ended June 30,
	2021					2020			2021					2020
Expected term (years)	5.11		—	10.00			10.00		5.11		—	10.00		5.27		—	10.00
Expected volatility	56.01	%	—	63.30	%		53.94	%	55.33	%	—	63.30	%	49.94	%	—	58.53	%
Expected dividend rate				0.00	%		0.00	%				0.00	%				0.00	%
Risk-free interest rate	0.81	%	—	1.67	%		0.71	%	0.81	%	—	1.67	%	0.44	%	—	1.70	%

As of June 30, 2021, total options outstanding include 32,053 shares of option awards that were granted to non-employees, of which 2,188 shares are unvested. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock option is earned and the services are rendered. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered.

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10. Debt

Credit Line Agreement

In September 2015, the Company entered into a credit line with UBS (the “Credit Line”) providing for a $50.0 million revolving line of credit that can be drawn down in increments at any time. The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%. The Credit Line is secured by a first priority lien and security interest in the Company’s money market and marketable securities held in its managed investment account with UBS. UBS has the right to demand full or partial payment of the Credit Line Obligations and terminate the Credit Line, in its discretion and without cause, at any time.

For the three months ended June 30, 2021 and 2020, the Company recorded interest expense on the Credit Line of $0.2 million for both periods. For the six months ended June 30, 2021 and 2020, the Company recorded interest expense on the Credit Line of $0.3 million and $0.5 million, respectively. Interest payments on the Credit Line were made within the same periods. As of June 30, 2021, remaining accrued interest was $1.0 million, and the total principal amount outstanding with accrued interest was $49.0 million.

Convertible Notes

In April 2020, the Company issued $287.5 million aggregate principal amount of Convertible Notes due 2027 in a private placement offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms. Upon conversion, the Convertible Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.

The Company received net proceeds from the Convertible Notes of $278.3 million, after deducting the initial purchasers’ discounts and debt issuance costs. The Company used approximately $79.2 million of the net proceeds from the Convertible Notes offering to repay its obligations under the 2017 Term Loan with OrbiMed.

The holders of the Convertible Notes may convert all or a portion of their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2027 in multiples of $1,000 principal amount, under any the following circumstances:  

● During any fiscal quarter commencing after March 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day.

● During the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of that five-day consecutive trading period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day.

● If the Company calls any or all of the Convertible Notes for redemption at any time prior to the close of business on the second business day prior to the redemption date.

● Upon the occurrence of certain distributions.

● Upon the occurrence of specified corporate transactions.

The Convertible Notes are convertible into shares of the Company’s common stock, par value $0.0001 per share, at an initial conversion rate of 25.7785 shares of common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $38.79 per share of common stock, convertible to 7,411,704 shares of common stock. The conversion rate and corresponding conversion price are subject to adjustment

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upon the occurrence of certain events but will not be adjusted for any accrued or unpaid interest. The holders of the Convertible Notes who redeem their Convertible Notes in connection with a make-whole fundamental change are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, the holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a price equal to 100% of the principal amount, plus any accrued and unpaid interest.

The Company may not redeem the Convertible Notes prior to May 2024, and no sinking fund is provided for the Convertible Notes. The Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, on or after May 2024, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest.

Upon adoption of ASU 2020-06, the Company allocated all of the debt discount to long-term debt. The debt discount is amortized to interest expense using the effective interest method, computed to be 2.72%, over the life of the Convertible Notes or approximately its seven-year term. The outstanding Convertible Notes balances as of June 30, 2021 are summarized in the following table:

	June 30,
	2021
	(in thousands)
Long-Term Debt
Outstanding Principal	$	287,500
Unamortized debt discount and issuance cost		(7,723)
Net carrying amount	$	279,777

The following table presents total interest expense recognized related to the Convertible Notes during the three and six months ended June 30, 2021:

	Three months ended		Six months ended
	June 30,		June 30,
	2021		2021
	(in thousands)
Cash interest expense
Contractual interest expense	$	1,617	$	3,234
Non-cash interest expense
Amortization of debt discount and debt issuance cost		306		610
Total interest expense	$	1,923	$	3,844

11. Income Taxes

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense, immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of 2017, for qualified improvement property. As of June 30, 2021, the Company expects that these provisions will not have a material impact as the Company has no net operating losses or AMT credits that would fall under these provisions and does not expect interest expense to be deductible due to current and historical losses.

During the three months ended June 30, 2021, the Company recorded total income tax expense of approximately $242,000 and $15,000, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded total income tax expense of approximately $376,000 and $38,000, respectively. For the three and six months ended June 30,

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2021, the income tax expense is primarily attributable to state income tax and foreign income tax expenses resulting from testing to clinics and licenses of cloud-based software and intellectual property that are based in a foreign country. There was no state income tax expense recorded for the three and six months ended June 30, 2020. Due to the Company’s history of cumulative operating losses, the Company concluded that, after considering all the available objective evidence, it is not more likely than not that all of the Company’s net deferred tax assets will be realized. Accordingly, all of the Company’s deferred tax assets, which includes net operating loss or NOL carryforwards and tax credits related primarily to research and development, continue to be subjected to a valuation allowance as of June 30, 2021. The Company will continue to maintain a full valuation allowance until there is sufficient evidence to support recoverability of its deferred tax assets.

As described in Note 10, Debt, the Company accounted for the issuance of the Convertible Notes by separating the Convertible Notes into separate liability and equity components. The portion of the proceeds allocated to equity created a basis difference at issuance and resulted in a deferred tax liability.  The debt issuance costs attributable to the equity component are deductible for tax and represent a deferred tax asset as of the issuance date.  However, since the Company has a full valuation allowance, both the deferred tax liability related to the equity component and the deferred tax asset related to the debt issuance costs had no impact to income tax expense in the three and six months ended June 30, 2021. 

The Company had $12.9 million and $11.5 million in unrecognized tax benefits as of June 30, 2021 and December 31, 2020, respectively. The reversal of the uncertain tax benefits would not affect the effective tax rate to the extent that the Company continues to maintain a full valuation allowance against its deferred tax assets. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

Interest and/or penalties related to income tax matters are recognized as a component of income tax expense. As of June 30, 2021, there were no accrued interest and penalties related to uncertain tax positions.

12. Net Loss per Share

Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, excluding shares subject to repurchase and without consideration of potentially dilutive securities. Diluted net loss per share is computed by giving effect to all potentially dilutive common shares outstanding for the period. For purposes of this computation, outstanding common stock options, and restricted stock units are considered to be common share equivalents. Common share equivalents are excluded from the computation in periods in which they have an anti-dilutive effect, unless the consideration of any one of them gives a dilutive effect.

The Convertible Notes are convertible as of June 30, 2021. Upon conversion, the Company has the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion. If converted, the value of the Convertible Notes based on contractual settlement provisions would exceed its principal amount by $450.1 million as of June 30, 2021. Since the Company is in a net loss position in the periods presented, the shares which would be issued upon conversion of the Convertible Notes are excluded from the net loss per share calculation as it would have an antidilutive effect.  As such, the 7.4 million shares underlying the conversion option of the Convertible Notes will not have an impact on the Company’s diluted earnings per share. If converted, the Company does not intend to settle the obligation in cash.

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The following table provides the basic and diluted net loss per share computations for the six months ended June 30, 2021 and 2020.

	Three months ended				Six months ended
	June 30,				June 30,
(in thousands, except per share data)	2021		2020		2021		2020
Numerator:
Net loss, basic and diluted	$	(116,026)	$	(59,637)	$	(179,879)	$	(95,009)
Denominator:
Weighted-average number of shares used in computing net loss per share, basic and diluted		88,077		79,069		87,387		78,681
Net loss per share, basic and diluted	$	(1.32)	$	(0.75)	$	(2.06)	$	(1.21)

The following table shows total outstanding potentially dilutive shares excluded from the computation of diluted loss per share as their effect would be anti-dilutive, as of June 30, 2021 and 2020:

	June 30,
	2021	2020
	(in thousands)
Options to purchase common stock	6,284	7,822
Restricted stock units	3,992	4,051
Employee stock purchase plan	31	51
Convertible Notes	7,411	7,411
Total	17,718	19,335

13. Subsequent Events

In July 2021, the Company completed an underwritten equity offering and sold 5,175,000 shares of its common stock at a price of $113 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $551.2 million net of the underwriting discount.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Overview

We are a diagnostics company with proprietary molecular and bioinformatics technology that we deploy to change the management of disease worldwide. Our technology has been proven clinically and commercially in the women’s health space, in which we develop and commercialize non- or minimally- invasive tests to evaluate risk for, and thereby enable early detection of, a wide range of genetic conditions, such as Down syndrome. We are now translating our success in women’s health and applying our core technology in the oncology space, in which we are commercializing a personalized blood-based DNA test to detect molecular residual disease and help guide treatment decisions, as well as in organ health, with tests to assess the health of organ transplant patients. We seek to enable even wider adoption of our technology through Constellation, our global cloud-based distribution model. In addition to our direct sales force in the United States, we have a global network of over 100 laboratory and distribution partners, including many of the largest international laboratories.

We currently provide a comprehensive suite of products in women’s health, as well as our offerings in oncology and organ health, and our Constellation cloud-based platform. We generate a majority of our revenues from the sale of Panorama, our non-invasive prenatal test (“NIPT”), as well as Horizon, our Carrier Screening (“HCS”) test. In addition to Panorama and Horizon, our product offerings in women’s health include Spectrum Preimplantation Genetics, our Anora miscarriage test, and our Vistara single-gene NIPT. Our oncology product is our Signatera molecular residual disease test, which we commercialize as a test run in our CLIA laboratory and offer on a research use only (“RUO”) basis to research laboratories and pharmaceutical companies; and our primary organ health offering is our Prospera transplant assessment test.

We process tests in our laboratories certified under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) in Austin, Texas and San Carlos, California. A portion of our testing is performed by third-party laboratories. Our customers include independent laboratories, national and regional reference laboratories, medical centers and physician practices for our screening tests, and research laboratories and pharmaceutical companies. We market and sell our prenatal screening tests both through our direct sales force and through our laboratory distribution partners. We bill clinics, laboratory distribution partners, patients, pharmaceutical companies and insurance payers for the tests we perform. In cases where we bill laboratory distribution partners, our partners in turn bill clinics, patients and insurers. The majority of our revenue comes from insurers with whom we have in-network contracts. Such insurers reimburse us for NIPT procedures pursuant to our in-network contracts with them, based on positive coverage determinations, which means that the insurer has determined that NIPT in general is medically necessary for this category of patient. In the United States, the majority of insurance providers provide positive NIPT coverage.

In addition to offering tests to be performed at our laboratories, either directly or through our laboratory distribution partners, we also establish licensing arrangements with laboratories under Constellation, our cloud-based distribution model, whereby our laboratory licensees run the molecular workflows themselves and then access our bioinformatics algorithms through our cloud-based software. This cloud-based distribution model results in lower revenues and gross profit per test compared to cases we process. However, because we do not incur the costs of processing the tests, our costs per test under this model are also lower. We began entering into these licensing arrangements starting in the fourth quarter of 2015.

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The principal focus of our commercial operations is to offer our tests through both our direct sales force and laboratory distribution partners, and our Constellation licensees under our cloud-based distribution model. The number of tests that we accession is a key indicator that we use to assess our business. A test is accessioned when we receive the test at our laboratory, the relevant information about the test is entered into our computer system, and the test sample is routed into the appropriate workflow. This number is a subset of the number of tests that we process, which includes tests distributed through our Constellation licensees. The number of tests that we process is a key metric as it tracks overall volume growth, particularly as our laboratory partners may transition from sending samples to our laboratory to our cloud-based distribution model, as a result of which our tests accessioned would decrease but our tests processed would remain unchanged. During the six months ended June 30, 2021, we processed 723,900 tests, comprised of approximately 694,900 tests accessioned in our laboratory, compared to approximately 469,500 tests processed, comprised of approximately 444,000 tests accessioned in our laboratory, during the three months ended June 30, 2020. This increase in volume primarily represents continued commercial growth of Panorama and HCS, both as tests performed in our laboratory as well as through our Constellation software platform.

The percent of our revenues attributable to our U.S. direct sales force for the six months ended June 30, 2021 was 90%, an increase from 86% for the six months ended June 30, 2020. The percent of our revenues attributable to U.S. laboratory distribution partners for the six months ended June 30, 2021 was 5%, a decrease from 7% in the same period in the prior year. Our ability to increase our revenues and gross profit will depend on our ability to further penetrate the U.S. market with our direct sales force. The percent of our revenues attributable to international laboratory distribution partners and other international sales for the six months ended June 30, 2021 was 5%, down from 7% for the six months ended June 30, 2020, due primarily to the increase in US direct sales as a percentage of revenue.

For the six months ended June 30, 2021, total revenues were $294.3 million, compared to $180.5 million in the six months ended June 30, 2020. Revenues generated from testing accounted for $255.6 million, 87% of total revenues, for the six months ended June 30, 2021; compared to $167.5 million, 93% of total revenues, for the six months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, no customers exceeded 10% of the total revenues on an individual basis. Revenues from customers outside the United States were $14.6 million, representing approximately 5% of total revenues, for the six months ended June 30, 2021. For the six months ended June 30, 2020, revenues from customers outside the United States were $13.0 million, representing approximately 7% total revenues. Most of our revenues have been denominated in U.S. dollars, though we generate some revenue in foreign currency, primarily denominated in Euros and Singapore Dollars.

Our net loss for the six months ended June 30, 2021 and 2020 were $179.9 million and $95.0 million, respectively. This included non-cash stock compensation expense of $58.3 million and $19.4 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, we had an accumulated deficit of $1.1 billion.

COVID-19 Impact

The COVID-19 pandemic continues to present a global public health and economic challenge and is affecting our business operations and the U.S. and other major economies and financial markets. The spread of COVID-19 has caused us to modify our business practices (including temporary closures of our offices and other measures as we have deemed necessary or appropriate from time to time), and incur additional operating costs, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. Such actions could also impact our ability to fully integrate businesses we may acquire in the future. There is no certainty that such actions will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. If significant portions of our workforce, and particularly our laboratory staff, are unable to work effectively, including due to illness, quarantines, social distancing, government actions or other restrictions in connection with the COVID-19 pandemic, our operations and financial results will be impacted.

The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which continue to remain highly uncertain and cannot be predicted, including, but not limited to, the continued duration and spread of the pandemic, its severity, the actions to contain the virus or address its impact, and when and to what extent normal economic and operating activities can resume. The COVID-19 pandemic could limit the ability of our customers, suppliers and business partners to perform under their contracts with us, including

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third-party payers’ ability to make timely payments to us during and following the pandemic. We may also experience a shortage of laboratory supplies and reagents or a suspension of services from other laboratories or third parties. We have also become increasingly dependent on growing and maintaining a network of mobile phlebotomy specialists who can provide testing capabilities, as many consumers are unable to visit clinics, hospitals or other testing facilities as a result of the COVID-19 pandemic. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business because of its global economic impact, including any recession that has occurred or may occur in the future.

Specifically, difficult macroeconomic conditions as a result of COVID-19, such as decreases in per capita income and level of disposable income, increased and prolonged unemployment, a decline in consumer confidence, as well as limited or significantly reduced points of access of our products, could have a material adverse effect on the demand for some of our products, such as our products targeted for the IVF market. Decreased demand for our tests, particularly in the United States, could negatively affect our overall financial performance. A significant portion of our revenue is concentrated in the United States, where the impact of COVID-19 has been significant, and the potential decrease in demand for our tests could have a disproportionately negative impact on our business and financial results.

In particular, while our test volumes in 2021 have increased compared to the previous year, and the average selling price of our tests in the six months ended June 30, 2021 increased compared to the six months ended June 30, 2020, we cannot predict volatility of the volumes and selling prices of our tests that may result from the continued impact of the COVID-19 pandemic, and either or both of these metrics may fluctuate from period to period. Further, we cannot predict the potential nature, magnitude and duration of the effects of the COVID-19 pandemic on our business.

In response to the COVID-19 pandemic, we have implemented measures to protect the health of our employees and to support the functionality of our laboratories. We will continue to support and incur expenditures towards COVID-19 prevention and employee safety.

Components of the Results of Operations

Revenues

We generate revenues from the sale of our tests, primarily from the sale of our Panorama and HCS tests. Our two primary distribution channels are our direct sales force and our laboratory partners. In cases where we promote our tests through our direct sales force, we generally bill directly to a patient, clinic or insurance carrier, or a combination of the insurance carrier and patient, for the fees.

Sales of our clinical tests are recorded as product revenues. Revenues recognized from tests processed through our Constellation model, from the Qiagen, BGI Genomics, and Foundation Medicine agreements (collectively the “Strategic Partnership Agreements”), and from our Signatera research use only offering are reported in licensing and other revenues.

In cases where we sell our tests through our laboratory partners, the majority of our laboratory partners bill the patient, clinic or insurance carrier for the performance of our tests, and we are entitled to either a fixed price per test or a percentage of their collections.

Our ability to increase our revenues will depend on our ability to further penetrate the domestic and international markets and, in particular, generate sales through our direct sales force, develop and commercialize additional tests, obtain reimbursement from additional third-party payers and increase our reimbursement rate for tests performed. In particular, our financial performance depends on reimbursement for Panorama in the average risk population and for microdeletions. There has been a significant increase in the number of commercial third-party payers that cover the use of Panorama in the average risk population, representing approximately 95% of commercial covered lives in the United States, as well as an increasing number of state Medicaid payers expanding coverage to average risk pregnancies. Many third-party payers do not currently reimburse for microdeletions screening in part because there is currently limited published data on the performance of microdeletions screening tests. A new current procedure terminology (“CPT”) code for microdeletions

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went into effect beginning January 1, 2017. We have experienced low average reimbursement rates thus far for microdeletions testing under this new code, and we expect that this new code will cause, at least in the near term, our microdeletions reimbursement to remain low, due to third-party payers declining to reimburse and through reduced reimbursement under the new code. This has had, and we expect it will continue to have, an adverse impact on our revenues. In addition, a new CPT code for expanded carrier screening went into effect beginning January 1, 2019, and has had, and may continue to have, an adverse effect on our reimbursement rates for our broader Horizon carrier screening panel for which we previously primarily received reimbursement on a per-condition basis, as those tests may be reimbursed as a combined single panel instead of as multiple individual tests. Because our revenues from Horizon continue to represent an increasing proportion of our overall revenues, a decline in our reimbursement rates for, and therefore our average selling price of, Horizon, could result in a decline in our overall revenue.

Our financial performance has also been impacted by the increase in in-network coverage of our tests by third-party payers, which we believe is crucial to our growth and long-term success. However, because the negotiated fees under our contracts with third-party payers are typically lower than the list price of our tests, as we enter into additional in-network contracts with insurance providers, our average reimbursement per test may decrease as compared to out-of-network contracts. While we expect the reduction in average reimbursement per test from in-network pricing to reduce our revenues and gross margins in the near term, in-network pricing is more predictable than out-of-network pricing, and we intend to continue to mitigate the impact by driving more business from our most profitable accounts.

Cost of Product Revenues

The components of our cost of product revenues are material and service costs, impairment charges associated with testing equipment, personnel costs, including stock-based compensation expense, equipment and infrastructure expenses associated with testing samples, electronic medical records, order and delivery systems, shipping charges to transport samples, costs incurred from third party test processing fees, and allocated overhead such as rent, information technology costs, equipment depreciation and utilities. Costs associated with Whole Exome Sequencing (“WES”) are also included, as well as labor costs, relating to our Signatera CLIA offering. Costs associated with performing tests are recorded when the test is accessioned. We expect cost of product revenues in absolute dollars to increase as the number of tests we perform increases.

As we continue to achieve scale, we have increased our focus on more efficient use of labor, automation, and DNA sequencing. For example, we updated the molecular and bioinformatics process for Panorama to further reduce the sequencing reagents, test steps and associated labor costs required to obtain a test result, while increasing the accuracy of the test to allow it to run with lower fetal fraction input. These improvements also reduced the frequency of the need to require blood redraws from the patient.

Cost of Licensing and Other Revenues

The components of our cost of licensing and other revenues are material costs associated with test kits sold to Constellation clients, development and support services relating to our Strategic Partnership Agreements, and costs associated with specimens and WES, as well as labor costs, relating to our Signatera research use only offering.

We currently have 15 revenue generating licensing and service agreements with laboratories under our Constellation distribution model. We consider our cost of licensing and other revenues for the Constellation software platform to be relatively low, and therefore we expect its associated gross margin is higher. We expect our cost of licensing will increase in relation to volume growth.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on

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our 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 may differ from these estimates under different assumptions or conditions. We consider our critical accounting policies and estimates to be revenue recognition, leases, inventory, fair value measurements including the valuation of 2.25% Convertible Senior Notes due 2027 (the “Convertible Notes”), and stock-based compensation.

Recent Accounting Pronouncements

We have adopted ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) which simplifies the accounting for convertible instruments. See Note 2, Summary of Significant Accounting Policies, of Item 1, Financial Statement, for recently adopted accounting pronouncements. There have been no material changes to our other critical accounting policies and estimates as compared to the disclosures in our annual report on Form 10-K for the year ended December 31, 2020.

Results of Operations

Comparison of the three months ended June 30, 2021 and 2020

	Three Months Ended
	June 30,				Change
	2021		2020		Amount		Percent
(in thousands except percentage)
Revenues
Product revenues	$	137,232	$	80,414	$	56,818	70.7	%
Licensing and other revenues		4,794		6,058		(1,264)	(20.9)
Total revenues		142,026		86,472		55,554	64.2
Cost and expenses
Cost of product revenues		73,227		42,731		30,496	71.4
Cost of licensing and other revenues		2,885		4,208		(1,323)	(31.4)
Research and development		53,752		23,005		30,747	133.7
Selling, general and administrative		127,456		68,188		59,268	86.9
Total cost and expenses		257,320		138,132		119,188	86.3
Loss from operations		(115,294)		(51,660)		(63,634)	123.2
Interest expense		(2,075)		(4,038)		1,963	(48.6)
Interest and other income, net		1,585		1,924		(339)	(17.6)
Loss on debt extinguishment		—		(5,848)		5,848	(100.0)
Loss before income taxes		(115,784)		(59,622)		(56,162)	94.2
Income tax expense		(242)		(15)		(227)	1,513.3
Net loss	$	(116,026)	$	(59,637)	$	(56,389)	94.6	%

Revenues

Total revenues are comprised of product revenues, which are primarily driven by sales of our Panorama and HCS tests, and licensing and other revenues, which primarily includes development licensing revenue, licensing of our Constellation software to our licensees, and revenues from our Signatera research use only offering. Total revenues increased by $55.6 million, or 64.2%, when compared to the three months ended June 30, 2020.

We derive our revenues from tests based on units reported to customers—tests delivered with a result. All reported units are either accessioned in our laboratory or processed outside of our laboratory. As noted in the section titled “Overview” above, the number of tests that we process is a key metric as it tracks overall volume growth. During the three months ended June 30, 2021, total reported units were approximately 355,700, comprised of approximately 342,500 tests

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reported in our laboratory. Comparatively, during the three months ended June 30, 2020, total reported units were approximately 220,100, comprising of approximately 208,400 tests reported in our laboratory.

Product Revenues

During the three months ended June 30, 2021, product revenues increased by $56.8 million, or 70.7%, compared to the three months ended June 30, 2020, as a result of the continued revenue growth from test volumes.

Licensing and Other Revenues

Licensing and other revenues decreased by $1.3 million, or 20.9%, during the three months ended June 30, 2021 when compared to the three months ended June 30, 2020. The decrease in revenue was primarily due to a decrease in revenues recognized from our collaborative agreements.

Cost of Product Revenues

During the three months ended June 30, 2021, cost of product revenues increased compared to the three months ended June 30, 2020 by approximately $30.5 million, or 71.4%, due to a $7.7 million increase in third-party fees, higher costs related to inventory consumption of $7.6 million driven by an increase in accessioned tests, a $2.5 million increase in shipping related charges, and a $12.7 million increase in labor and overhead costs driven by headcount growth and product support.

Cost of Licensing and Other Revenues

Cost of licensing and other revenues for the three months ended June 30, 2021, when compared to the three months ended June 30, 2020, decreased by $1.3 million, or 31.4%, due to a decrease in labor and overhead costs related to license and development support.

Research and Development

Research and development expenses during the three months ended June 30, 2021, increased by $30.7 million, or 133.7%, when compared to the three months ended June 30, 2020. The increase was driven by a $14.6 million increase in salary and related expenditures primarily due to headcount growth, which includes a $3.7 million increase in stock-based compensation expense, an increase of $7.1 million of consulting costs, a $6.7 million increase of costs related to clinical studies to support our new product offerings, a $1.9 million increase related to software licenses, and a $0.4 million increase in facilities costs.

Selling, General and Administrative

Selling, general and administrative expenses increased by $59.3 million, or 86.9%, during the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase was attributable to an increase of $42.4 million in salary and related expenditures primarily due to headcount growth, which includes a $18.6 million increase in stock-based compensation expense, a $4.0 million increased in marketing expenses, a $3.8 million increase in travel related costs, a $4.0 million increase in consulting and legal fees, a $3.4 million increase from business insurance and other administrative costs, and $1.7 million of higher costs related to computer hardware, software licenses, and other costs.

Interest Expense

Interest expense decreased by $2.0 million, or 48.6%, in the three months ended June 30, 2021 compared to the same period in the prior year. The interest expense from the Convertible Notes issued in April 2020, after adoption of ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) was lower than the interest expense related to the 2017 Term Loan with Orbimed which was extinguished in April 2020.

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Interest and Other Income

Interest and other income for the three months ended June 30, 2021 decreased $0.3 million compared to the same period in the prior year, primarily due to less interest income as a result of lower yields from our investments.

Loss on Debt Extinguishment

The loss on debt extinguishment of $5.8 million was a result of the repayment of the outstanding principal and interest under the 2017 Term Loan with Orbimed in the second quarter of 2020. Refer to note 10, Debt, in Item 1, Financial Statements, for additional details.

Comparison of the six months ended June 30, 2021 and 2020

	Six Months Ended
	June 30,				Change
	2021		2020		Amount		Percent
(in thousands except percentage)
Revenues
Product revenues	$	255,614	$	167,460	$	88,154	52.6	%
Licensing and other revenues		38,728		13,024		25,704	197.4
Total revenues		294,342		180,484		113,858	63.1
Cost and expenses
Cost of product revenues		134,549		84,251		50,298	59.7
Cost of licensing and other revenues		8,376		7,666		710	9.3
Research and development		93,940		41,230		52,710	127.8
Selling, general and administrative		235,788		133,869		101,919	76.1
Total cost and expenses		472,653		267,016		205,637	77.0
Loss from operations		(178,311)		(86,532)		(91,779)	106.1
Interest expense		(4,148)		(6,502)		2,354	(36.2)
Interest and other income, net		2,956		3,911		(955)	(24.4)
Loss on debt extinguishment		—		(5,848)		5,848	(100.0)
Loss before income taxes		(179,503)		(94,971)		(84,532)	89.0
Income tax expense		(376)		(38)		(338)	889.5
Net loss	$	(179,879)	$	(95,009)	$	(84,870)	89.3	%

Revenues

Total revenues are comprised of product revenues, which are primarily driven by sales of our Panorama and HCS tests, and licensing and other revenues, which primarily includes development licensing revenue, licensing of our Constellation software to our licensees and revenues from our Signatera (RUO) offering. Total revenues increased by $113.9 million, or 63.1%, when compared to the six months ended June 30, 2020.

We derive our revenues from tests based on units reported to customers—tests delivered with a result. All reported units are either accessioned in our laboratory or processed outside of our laboratory. As noted in “Overview,” the number of tests that we process is a key metric as it tracks overall volume growth. During the six months ended June 30, 2021, total reported units were approximately 669,500, comprised of approximately 642,400 tests reported in our laboratory. Comparatively, during the six months ended June 30, 2020, total reported units were approximately 441,500, comprised of approximately 417,600 tests reported in our laboratory.

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Product Revenues

During the six months ended June 30, 2021, product revenues increased by $88.1 million, or 52.6% compared to the six months ended June 30, 2020, as a result of the continued revenue growth from test volumes.

Licensing and Other Revenues

Licensing and other revenues increased by $25.7 million, or 197.4%, during the six months ended June 30, 2021 when compared to the six months ended June 30, 2020, due to $28.6 million of revenue recognized from Qiagen which was previously recorded in deferred revenue, partially offset by a $2.9 million decrease in revenues recognized from our collaborative agreements.

Cost of Product Revenues

During the six months ended June 30, 2021, cost of product revenues increased by $50.3 million, or 59.7%, when compared to the six months ended June 30, 2020, due to higher costs related to inventory consumption of $14.7 million, a $12.4 million increase in third-party fees, and a $3.6 million increase in shipping related charges, all due to an increase in volume. In addition, there was a $19.6 million increase in labor and overhead costs driven by headcount growth and product support.

Cost of Licensing and Other Revenues

Cost of licensing and other revenues for the six months ended June 30, 2021, when compared to the six months ended June 30, 2020, increased by $0.7 million, or 9.3%, primarily due to an increase in labor and overhead costs related to third-party service fees as a result of increased volumes for Signatera

Research and Development

Research and development expenses during the six months ended June 30, 2021 increased by $52.7 million, or 127.8%, when compared to the six months ended June 30, 2020. The increase was driven by a $27.1 million increase in salary and related expenditures primarily due to headcount growth, which includes a $5.7 million increase in stock-based compensation expense, an increase of $10.7 million of consulting costs, a $9.4 million increase of costs related to clinical studies to support our new product offerings, a $4.0 million increase related to software licenses, and a $1.5 million increase in facilities costs.

Selling, General and Administrative

Selling, general and administrative expenses increased by $101.9 million, or 76.1%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase was attributable to an increase of $77.9 million in salary and related expenditures primarily due to headcount growth, which includes a $32.0 million increase in stock-based compensation expense, a $7.1 million increase in marketing expenses, a $3.6 million increase in travel related costs, a $6.6 million increase in consulting and legal fees, a $2.5 million increase related to computer hardware and software licenses, and a $4.2 million increase from business insurance, bank fees, office supplies and other costs.

Interest Expense

Interest expense decreased by $2.4 million, or 36.2%, in the six months ended June 30, 2021 compared to the same period in the prior year. The interest expense from the Convertible Notes issued in April 2020, was lower than the interest expense related to the 2017 Term Loan with Orbimed which was extinguished in April 2020.

Interest and Other Income

Interest and other income decreased by $1.0 million, or 24.4%, in the six months ended June 30, 2021, compared to the same period in the prior year, primarily due to less interest income as a result of lower yields from our investments.

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Loss on Debt Extinguishment

The loss on debt extinguishment of $5.8 million was a result of the repayment of the outstanding principal and interest under the 2017 Term Loan with Orbimed in the second quarter of 2020. Refer to note 10, Debt, in Item 1, Financial Statements, for details.

Liquidity and Capital Resources

We have incurred net losses each year since our inception. For the six months ended June 30, 2021, we had a net loss of $179.9 million, and we expect to continue to incur losses in future periods as we continue to devote a substantial portion of our resources to our research and development and commercialization efforts for our existing and new products. As of June 30, 2021, we had an accumulated deficit of $1.1 billion. We had $63.0 million in cash and cash equivalents and restricted cash, $517.4 million in marketable securities, $50.0 million of outstanding balance of the Credit Line including accrued interest, and $287.5 million outstanding principal balance on the Convertible Notes. We used a portion of the net proceeds from the offering of the Convertible Notes to repay our obligations under our 2017 Term Loan with OrbiMed (see Note 10, Debt, in Item 1, Financial Statements).

While we have introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, we have funded the portion of operating costs that exceeds revenues through a combination of equity issuances and debt and other financings. We expect to develop and commercialize future products and, consequently, we will need to generate additional revenues to achieve future profitability and may need to raise additional equity or incur additional debt. If we raise additional funds by issuing equity securities, our stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and requires significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain additional financing, we may be required to delay the development and commercialization of our products and significantly scale back our business and operations.

In May 2021, we entered into a development and option agreement with a third party that requires the third party to use its best efforts to perform an agreed upon development plan and provides an exclusive option to purchase the third party’s assets. We paid the third party $10 million in the second quarter of 2021 for conducting the development work and for entering into the agreement, and if we elect to exercise the option, we have agreed to pay the third party an additional $290 million for the designated assets. There is no assurance that the development plan will be successful, or that we will elect to exercise the option to purchase the third party’s assets or, if we exercise the option, that it will derive the anticipated benefit from the acquisition of these assets.

In April 2019, we completed an underwritten equity offering and sold 6,052,631 shares of common stock at a price of $19 per share to the public. Before offering expenses of $0.6 million, we received proceeds of $108.1 million net of the underwriting discount. In October 2019, we completed another underwritten equity offering and sold 6,571,428 shares of our common stock at a price of $35 per share to the public. Before offering expenses of $0.4 million, we received proceeds of $216.2 million net of the underwriting discount. In September 2020, the Company completed an additional underwritten equity offering and sold 4,791,665 shares of our common stock at a price of $60.00 per share to the public. Before offering expenses of $0.3 million, we received proceeds of $271.0 million net of the underwriting discount. In July 2021, the Company completed an underwritten equity offering and sold 5,175,000 shares of its common stock at a price of $113 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $551.2 million net of the underwriting discount. Based on our current business plan, we believe that our existing cash and marketable securities will be sufficient to meet our anticipated cash requirements for at least 12 months after August 5, 2021.

Credit Line Agreement

In September 2015, we entered into the Credit Line with UBS providing for a $50.0 million revolving line of credit which can be drawn in increments at any time. The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%, and it is secured by a first priority lien and security interest in our money market and marketable

46

securities held in our managed investment account with UBS. UBS has the right to demand full or partial payment of the Credit Line obligations and terminate it, in its discretion and without cause, at any time. As of June 30, 2021, remaining accrued interest was $1.1 million, and the total principal amount outstanding with accrued interest was $49.0 million.

Convertible Notes

In April 2020, we issued $287.5 million aggregate principal amount of Convertible Notes in a private placement offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually in arrears in May and November of each year, beginning in November 2020. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms. Upon conversion, the Convertible Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

We received net proceeds from the Convertible Notes of $278.3 million, after deducting the initial purchasers’ discounts and debt issuance costs. We used approximately $79.2 million of the net proceeds from the Convertible Notes offering to repay our obligations under the 2017 Term Loan with OrbiMed.

Cash Flows

The following table summarizes our condensed consolidated cash flows for the periods indicated:

	Six Months Ended
	June 30,
	2021		2020
(in thousands)
Cash used in operating activities	$	(145,439)	$	(76,080)
Cash provided by (used in) investing activities		146,709		(121,954)
Cash provided by financing activities		12,914		213,430
Net increase in cash, cash equivalents and restricted cash		14,184		15,396
Cash, cash equivalents and restricted cash, beginning of period		48,855		61,981
Cash, cash equivalents and restricted cash, end of period	$	63,039	$	77,377

Cash Used in Operating Activities

Cash used in operating activities during the six months ended June 30, 2021 was $145.4 million. The net loss of $179.9 million includes $74.1 million in non-cash charges resulting from $5.3 million of depreciation and amortization, $3.8 million premium amortization and discount accretion on investment securities, $58.3 million of stock-based compensation expense, $5.4 million of non-cash lease expense, $0.6 million for amortization of debt discount and issuance cost, $0.6 million of inventory reserve adjustments, and $0.1 million of other non-cash charges. Operating assets had cash outflows of $38.1 million resulting from $21.6 million in increases in accounts receivable, $9.0 million in increases in inventory, and $7.5 million in increases in prepaid expenses and other current assets. Operating liabilities resulted in cash outflows of $1.5 million resulting from a $38.7 million decrease in deferred revenue offset by a $12.3 million increase in accounts payable, $0.5 million increase in accrued compensation and a $24.4 million increase in other accrued liabilities.

Cash used in operating activities during the six months ended June 30, 2020 was $76.1 million. The net loss of $95.0 million includes $38.3 million in non-cash charges resulting from $4.0 million of depreciation and amortization, $3.9 million non-cash lease expense, $19.4 million of stock-based compensation expense, $2.2 million of amortization of debt discount, $1.9 million premium amortization and discount accretion on investment securities, $1.4 million provision for credit losses and a $5.8 million loss on debt extinguishment. These non-cash charges were offset by $0.3 million in other non-cash benefits. Operating assets had cash outflows of $16.9 million resulting from $6.0 million increases in accounts receivable, $5.4 million increases in inventory, and $5.6 million increases in prepaids and other current assets

47

net of allowances for credit loss associated with receivables from third-party buyer, offset by $0.1 million decreases in other assets. Operating liabilities had cash outflows of $2.5 million resulting from a $4.9 million decrease in deferred revenue and $4.7 million decrease in accounts payable, offset by $6.6 million increase in other accrued liabilities and $0.5 million increase in accrued compensation.

Cash Provided by Investing Activities

Cash provided by investing activities for the six months ended June 30, 2021 totaled $146.7 million, which was comprised of $205.5 million from proceeds from investment maturities and $31.1 million from proceeds from sale of investments, which was offset by $71.0 million in purchasing of new investments and $18.9 million in acquisitions of property, plant and equipment.

Cash used in investing activities for the six months ended June 30, 2020 totaled $122.0 million, which was comprised of purchasing new investments of $266.1 million and $10.1 million in acquisitions of property, plant and equipment, offset by $142.8 million from proceeds of investments maturities and $11.5 million proceeds from sale of investments.

Cash Provided by Financing Activities

Cash provided by financing activities for the six months ended June 30, 2021 totaled $12.9 million which was comprised of $6.8 million of proceeds from the exercise of stock options and $6.1 million from issuance of common stock under the employee stock purchase plan.

Cash provided by financing activities for the six months ended June 30, 2020 totaled $213.4 million comprised of net proceeds from the issuance of the Convertible Notes for $278.3 million and $13.9 million cash proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan. This was offset by a $79.2 million repayment of the 2017 Term Loan with OrbiMed.

Contractual Obligations and Other Commitments

See Note 8 – Commitments and Contingencies for details.

Off-Balance Sheet Arrangements

Other than our obligation to settle the conversion option under the Convertible Notes described in Note 10, Debt, in Item 1, Financial Statements, we do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. Our Credit Line has an interest rate of one-month LIBOR plus 1.10%. The LIBOR rate is variable. An incremental change in the borrowing rate of 100 basis points would increase our annual interest expense by $0.5 million based on our $50.0 million gross debt outstanding on our Credit Line, including principal and accrued interest as of June 30, 2021. The interest rate for our Convertible Notes is fixed at 2.25% and not exposed market risk related to interest rates. Our investment portfolio is exposed to market risk from changes in interest rates. This risk is mitigated as we have maintained a relatively short average maturity for our investment portfolio. An incremental change in the investment yield of 100 basis points would increase our annual interest income by approximately $5.2 million annually in relation to amounts we would expect to earn, based on our short-term investments as of June 30, 2021.

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Foreign Currency Exchange Rate Fluctuations

Our operations are currently conducted primarily in the United States. As we expand internationally, our results of operations and cash flows may become subject to fluctuations due to changes in foreign currency exchange rates. In periods when the U.S. dollar declines in value as compared to the foreign currencies in which we incur expenses, our foreign currency based expenses will increase when translated into U.S. dollars. In addition, future fluctuations in the value of the U.S. dollar may affect the price at which we sell our tests outside the United States. To date, our foreign currency risk has been minimal and we have not historically hedged our foreign currency risk; however, we may consider doing so in the future.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no material changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting despite a large group of our employees who are working remotely due to the COVID-19 pandemic.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

From time to time, we are involved in legal proceedings. The results of such legal proceedings and claims cannot be predicted with certainty, and regardless of the outcome, legal proceedings could have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors.

For information regarding certain current legal proceedings, see “Note 8—Commitments and Contingencies—Legal Proceedings” in the Notes to Unaudited Interim Condensed Consolidated Financial Statements, which is incorporated herein by reference.

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ITEM 1A.RISK FACTORS

Investing in our common stock involves a high degree of risk. In addition to the information set forth in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, you should consider carefully the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on February 26, 2021. The occurrence of any of the risks and uncertainties described in such Annual Report could materially and adversely affect our business, financial condition, results of operations and prospects. In that event, the price of our common stock could decline and you could lose part or all of your investment. Furthermore, such risks are not the only ones we face; additional risks and uncertainties not currently known or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.

ITEM 2         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)         Recent Sales of Unregistered Securities

              None.

(b)         Use of Proceeds

Not applicable.

(c)         Purchases of Equity Securities by the Issuer and Affiliated Purchasers

              None.

ITEM 3         DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4         MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5         OTHER INFORMATION

None.

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ITEM 6         EXHIBITS

INDEX TO EXHIBITS

		Incorporated by Reference
Exhibit No.	Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1†	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2†	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					X

52

		Incorporated by Reference
Exhibit No.	Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
Exhibit 104	Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.					X

†The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Natera, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, regardless of any general incorporation language contained in any filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

	NATERA, INC.
Date: August 5, 2021	By:	/ s / Steve Chapman
	Name:	Steve Chapman
	Title:	Chief Executive Officer, President, and Director
		(Principal Executive Officer)
	By:	/ s / Michael Brophy
	Name:	Michael Brophy
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

53

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steve Chapman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Natera, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

3
Date: August 5, 2021	By:	/s/ Steve Chapman
	Name:	Steve Chapman
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Brophy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Natera, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

3
Date: August 5, 2021	By:	/ s / Michael Brophy
	Name:	Michael Brophy
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Steve Chapman, Chief Executive Officer and President of Natera, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The quarterly report on Form 10-Q for the Company for the quarter ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

3
Date: August 5, 2021	By:	/ s / Steve Chapman
	Name:	Steve Chapman
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Brophy, Chief Financial Officer of Natera, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The quarterly report on Form 10-Q for the Company for the quarter ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

3
Date: August 5, 2021	By:	/ s / Michael Brophy
	Name:	Michael Brophy
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2021	Aug. 01, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2021
Entity File Number	001-37478
Entity Registrant Name	Natera, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	01-0894487
Entity Address, Address Line One	13011 McCallen Pass
Entity Address, Address Line Two	Building A Suite 100
Entity Address, City or Town	Austin
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	78753
City Area Code	650
Local Phone Number	249-9090
Title of 12(b) Security	Common Stock, par value $0.0001 per share
Trading Symbol	NTRA
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		93,783,076
Entity Central Index Key	0001604821
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 62,811	$ 48,668
Restricted cash	228	187
Short-term investments	517,432	688,606
Accounts receivable, net of allowance of $2,649 in 2021 and $3,080 in 2020	100,130	78,565
Inventory	28,409	20,031
Prepaid expenses and other current assets, net	30,878	26,606
Total current assets	739,888	862,663
Property and equipment, net	48,884	33,348
Operating lease right-of-use assets	48,337	21,399
Other assets	12,847	14,743
Total assets	849,956	932,153
Current liabilities:
Accounts payable	20,307	8,096
Accrued compensation	30,842	30,371
Other accrued liabilities	86,143	60,407
Deferred revenue, current portion	10,647	50,125
Short-term debt financing	50,049	50,054
Total current liabilities	197,988	199,053
Long-term debt financing	279,777	202,493
Deferred revenue, long-term portion	23,562	22,805
Operating lease liabilities, long-term portion	49,519	21,246
Other long-term liabilities		320
Total liabilities	550,846	445,917
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock, $0.0001 par value: 750,000 shares authorized at both June 30, 2021 and December 31, 2020, respectively; 88,498 and 86,223 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	9	9
Additional paid in capital	1,399,659	1,411,286
Accumulated deficit	(1,102,999)	(929,318)
Accumulated other comprehensive gain	2,441	4,259
Total stockholders' equity	299,110	486,236
Total liabilities and stockholders' equity	$ 849,956	$ 932,153

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Condensed Consolidated Balance Sheets
Allowances on accounts receivable	$ 2,649	$ 3,080
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	750,000	750,000
Common stock, shares issued	88,498	86,223
Common stock, shares outstanding	88,498	86,223

XML

Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenues
Total revenues	$ 142,026,000	$ 86,472,000	$ 294,342,000	$ 180,484,000
Cost and expenses
Research and development	53,752,000	23,005,000	93,940,000	41,230,000
Selling, general and administrative	127,456,000	68,188,000	235,788,000	133,869,000
Total cost and expenses	257,320,000	138,132,000	472,653,000	267,016,000
Loss from operations	(115,294,000)	(51,660,000)	(178,311,000)	(86,532,000)
Interest expense	(2,075,000)	(4,038,000)	(4,148,000)	(6,502,000)
Interest and other income, net	1,585,000	1,924,000	2,956,000	3,911,000
Loss on debt extinguishment		(5,848,000)		(5,848,000)
Loss before income taxes	(115,784,000)	(59,622,000)	(179,503,000)	(94,971,000)
Income tax expense	(242,000)	(15,000)	(376,000)	(38,000)
Net loss	(116,026,000)	(59,637,000)	(179,879,000)	(95,009,000)
Unrealized gain (loss) on available-for-sale securities, net of tax	(756,000)	104,000	(1,818,000)	4,851,000
Comprehensive loss	$ (116,782,000)	$ (59,533,000)	$ (181,697,000)	$ (90,158,000)
Net loss per share (Note 12):
Basic and diluted (in dollars per share)	$ (1.32)	$ (0.75)	$ (2.06)	$ (1.21)
Weighted-average number of shares used in computing basic and diluted net loss per share:
Basic and diluted (in shares)	88,077	79,069	87,387	78,681
Product
Revenues
Total revenues	$ 137,232,000	$ 80,414,000	$ 255,614,000	$ 167,460,000
Cost and expenses
Cost of revenues	73,227,000	42,731,000	134,549,000	84,251,000
Licensing and other
Revenues
Total revenues	4,794,000	6,058,000	38,728,000	13,024,000
Cost and expenses
Cost of revenues	$ 2,885,000	$ 4,208,000	$ 8,376,000	$ 7,666,000

XML

Condensed Consolidated Statements of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Common stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income	Accumulated Deficit	Total
Balance at Dec. 31, 2019	$ 8	$ 976,955	$ 919	$ (699,171)	$ 278,711
Balance (in shares) at Dec. 31, 2019	78,005
Issuance of common stock upon exercise of stock options		10,808			10,808
Issuance of common stock upon exercise of stock options (in shares)	1,037
Issuance of common stock under employee stock purchase plan		3,062			3,062
Issuance of common stock under employee stock purchase plan (in shares)	97
Equity component of Convertible Notes, net		82,873			82,873
Vesting of restricted stock units (in shares)	578
Stock based compensation		19,374			19,374
Unrealized (loss) gain on available-for-sale securities			4,851		4,851
Cumulative-effect adjustment upon adoption				(403)	(403)
Net loss				(95,009)	(95,009)
Balance at Jun. 30, 2020	$ 8	1,093,072	5,770	(794,583)	304,267
Balance (in shares) at Jun. 30, 2020	79,717
Balance at Mar. 31, 2020	$ 8	988,199	5,666	(734,946)	258,927
Balance (in shares) at Mar. 31, 2020	78,652
Issuance of common stock upon exercise of stock options		6,981			6,981
Issuance of common stock upon exercise of stock options (in shares)	680
Issuance of common stock under employee stock purchase plan		3,062			3,062
Issuance of common stock under employee stock purchase plan (in shares)	97
Equity component of Convertible Notes, net		82,873			82,873
Vesting of restricted stock units (in shares)	288
Stock based compensation		11,957			11,957
Unrealized (loss) gain on available-for-sale securities			104		104
Net loss				(59,637)	(59,637)
Balance at Jun. 30, 2020	$ 8	1,093,072	5,770	(794,583)	304,267
Balance (in shares) at Jun. 30, 2020	79,717
Balance at Dec. 31, 2020	$ 9	1,411,286	4,259	(929,318)	$ 486,236
Balance (in shares) at Dec. 31, 2020	86,223				86,223
Issuance of common stock upon exercise of stock options		6,829			$ 6,829
Issuance of common stock upon exercise of stock options (in shares)	782
Issuance of common stock under employee stock purchase plan		6,085			6,085
Issuance of common stock under employee stock purchase plan (in shares)	106
Vesting of restricted stock units (in shares)	1,387
Stock based compensation		58,335			58,335
Unrealized (loss) gain on available-for-sale securities			(1,818)		(1,818)
Cumulative-effect adjustment upon adoption		(82,876)		6,198	(76,678)
Net loss				(179,879)	(179,879)
Balance at Jun. 30, 2021	$ 9	1,399,659	2,441	(1,102,999)	$ 299,110
Balance (in shares) at Jun. 30, 2021	88,498				88,498
Balance at Mar. 31, 2021	$ 9	1,356,212	3,197	(986,973)	$ 372,445
Balance (in shares) at Mar. 31, 2021	87,430
Issuance of common stock upon exercise of stock options		2,259			2,259
Issuance of common stock upon exercise of stock options (in shares)	207
Issuance of common stock under employee stock purchase plan		6,085			6,085
Issuance of common stock under employee stock purchase plan (in shares)	106
Vesting of restricted stock units (in shares)	755
Stock based compensation		35,103			35,103
Unrealized (loss) gain on available-for-sale securities			(756)		(756)
Net loss				(116,026)	(116,026)
Balance at Jun. 30, 2021	$ 9	$ 1,399,659	$ 2,441	$ (1,102,999)	$ 299,110
Balance (in shares) at Jun. 30, 2021	88,498				88,498

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Operating activities
Net loss	$ (179,879)	$ (95,009)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	5,262	4,036
Premium amortization and discount accretion on investment securities	3,790	1,887
(Gain) loss on investments	(35)
Stock-based compensation	58,335	19,374
Non-cash lease expense	5,357	3,880
Amortization of debt discount and issuance cost	610	2,180
Inventory reserve adjustments	612
Other non-cash benefits (charges)	117	(341)
Provision for credit losses	63	1,445
Loss on Debt Extinguishment		5,848
Changes in operating assets and liabilities
Accounts receivable	(21,628)	(5,972)
Inventory	(8,991)	(5,410)
Prepaid expenses and other current assets	(7,466)	(5,610)
Other assets	(23)	99
Accounts payable	12,313	(4,684)
Accrued compensation	471	495
Other accrued liabilities	24,374	6,602
Deferred revenue	(38,721)	(4,900)
Net cash used in operating activities	(145,439)	(76,080)
Investing activities
Purchases of investments	(71,054)	(266,139)
Proceeds from sale of investments	31,144	11,500
Proceeds from maturity of investments	205,510	142,815
Purchases of property and equipment, net	(18,891)	(10,130)
Net cash provided by (used in) investing activities	146,709	(121,954)
Financing activities
Proceeds from exercise of stock options	6,829	10,808
Proceeds from issuance of common stock under employee stock purchase plan	6,085	3,062
Proceeds from Convertible Note, net of issuance costs		278,317
Loan payment		(78,757)
Net cash provided by financing activities	12,914	213,430
Net increase in cash, cash equivalents and restricted cash	14,184	15,396
Cash, cash equivalents and restricted cash, beginning of period	48,855	61,981
Cash, cash equivalents and restricted cash, end of period	63,039	77,377
Supplemental disclosure of cash flow information:
Cash paid for interest	3,538	2,976
Non-cash investing and financing activities:
Purchases of property and equipment in accounts payable and accruals	$ 4,688	$ 255

XML

Description of Business

6 Months Ended

Jun. 30, 2021

Description of Business

Description of Business

1. Description of Business

Natera, Inc. (the "Company") was formed in the state of California as Gene Security Network, LLC in November 2003 and incorporated in the state of Delaware in January 2007. The Company is a diagnostics company with proprietary molecular and bioinformatics technology that it is applying to change the management of disease worldwide. The Company’s cell-free DNA (“cfDNA”) technology combines its novel molecular assays, which reliably measure many informative regions across the genome from samples as small as a single cell, with its statistical algorithms which incorporate data available from the broader scientific community to identify genetic variations covering a wide range of serious conditions with best-in-class accuracy and coverage. The Company’s technology has been proven clinically and commercially in the women’s health space, in which it develops and commercializes non- or minimally-invasive tests to evaluate risk for, and thereby enable early detection of, a wide range of genetic conditions, such as Down syndrome.  The Company is now translating its success in women’s health and applying its core technology to the oncology market, in which it is commercializing a personalized blood-based DNA test to detect molecular residual disease and monitor disease recurrence, as well as to the organ health market, initially with a test to assess kidney transplants for rejection. The Company operates laboratories certified under the Clinical Laboratory Improvement Amendments ("CLIA") providing a host of cell-free DNA-based molecular testing services. The Company determines its operating segments based on the way it organizes its business to make operating decisions and assess performance. The Company operates one segment, the development and commercialization of molecular testing services, applying its proprietary technology in the fields of women’s health, oncology and organ health. The Company also has a subsidiary that operates in the state of Texas.

The Company's product offerings include its Panorama Non-Invasive Prenatal Test ("NIPT") that screens for chromosomal abnormalities of a fetus as well as in twin pregnancies, typically with a blood draw from the mother; Vistara, a single-gene mutations screening test performed to identify single-gene disorders; Horizon Carrier Screening ("HCS") to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; Spectrum Pre-implantation Genetics (“Spectrum”) to evaluate embryos to identify chromosomal anomalies or inherited genetic conditions to improve the chances of a healthy pregnancy during an in vitro fertilization ("IVF") cycle; Anora Miscarriage Test (“Anora”) to rapidly and extensively analyze fetal chromosomes to understand the cause of miscarriage; Non-Invasive Paternity Testing ("PAT"), which is exclusively marketed and sold by a licensee from whom the Company receives a royalty; Signatera, which detects circulating tumor DNA in patients previously diagnosed with cancer to assess molecular residual disease and monitor for recurrence; and Prospera, to assess organ transplant rejection. All testing is available principally in the United States. The Company also offers its Panorama test to customers outside of the United States, primarily in Europe. The Company also offers Constellation, a cloud-based software platform that enables laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch tests based on the Company’s technology. Through the third quarter of 2019, the Company offered Evercord for the collection and storage of newborn cord blood and cord tissue units, which was sold in the third quarter of 2019 to a third-party buyer.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

During the six months ended June 30, 2021, there were no material changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (filed on February 26, 2021), except as described in Recently Adopted Accounting Pronouncements below.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. The unaudited interim condensed consolidated financial information includes only adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the

results for the full year or the results for any future periods. The condensed consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements at that date, these financial statements should be read in conjunction with the audited financial statements, and related notes for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021. 

Liquidity Matters

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. The Company had a net loss of $179.9 million for the six months ended June 30, 2021 and an accumulated deficit of $1.1 billion as of June 30, 2021. As of June 30, 2021, the Company had $63.0 million in cash, cash equivalents, and restricted cash, $517.4 million in marketable securities, $50.0 million of outstanding balance of the Credit Line (as defined in Note 10, Debt) including accrued interest, and $287.5 million outstanding principal balance of its 2.25% Convertible Senior Notes (the “Convertible Notes”). In April 2020, the Company used a portion of the net proceeds from the offering of the Convertible Notes to repay its obligations under its 2017 Term Loan with OrbiMed.

While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings.

The Company continues to develop and commercialize future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing. If the Company raises additional funds by issuing equity securities, its stockholders will experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and requires significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to the Company. If the Company is unable to obtain additional financing, it may be required to delay the development and commercialization of its products and significantly scale back its business and operations.

In May 2021, the Company entered into a development and option agreement with a third party that requires the third party to use its best efforts to perform an agreed upon development plan and provides the Company with an exclusive option to purchase the third party’s assets. The Company paid the third party $10 million in the second quarter of 2021 for conducting the development work and for entering into the agreement, and if the Company elects to exercise its option, the Company has agreed to pay the third party an additional $290 million for the designated assets. There is no assurance that the development plan will be successful, or that the Company will elect to exercise its option to purchase the third party’s assets or, if the Company exercises this option, that it will derive the anticipated benefit from the acquisition of these assets.

In April 2019, the Company completed an underwritten equity offering and sold 6,052,631 shares of its common stock at a price of $19 per share to the public. Before offering expenses of $0.6 million, the Company received proceeds of $108.1 million net of the underwriting discount. In October 2019, the Company completed another underwritten equity offering and sold 6,571,428 shares of its common stock at a price of $35 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $216.2 million net of the underwriting discount. In September 2020, the Company completed an additional underwritten equity offering and sold 4,791,665 shares of its common stock at a price of $60.00 per share to the public. Before offering expenses of $0.3 million, the Company received proceeds of $271.0 million net of the underwriting discount. In July 2021, the Company completed an underwritten equity offering and sold 5,175,000 shares of its common stock at a price of $113 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $551.2 million net of the underwriting discount. Based on the Company’s current business plan, the Company believes that its existing cash and marketable securities will be sufficient to meet its anticipated cash requirements for at least 12 months after August 5, 2021.

Principles of Consolidation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its subsidiaries. The Company established a subsidiary that operates in the state of Texas to support the Company’s laboratory and operational functions. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) in the United States requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts calculated based on the average selling price expected to be received from insurance payors, the operating right-of-use assets and the associated lease liabilities, deferred revenues associated with unsatisfied performance obligations, accrued liability for potential refund requests, the valuation of the Convertible Notes, stock-based compensation, the fair value of common stock, income tax uncertainties, and the expected consideration to be received from contracts with customers. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors, including contractual terms and statutory limits; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Credit Losses

Trade accounts receivable and other receivables. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

The following is a roll-forward of the allowances for credit losses related to trade accounts receivable and other receivables for the six months ended June 30, 2021:

	Six Months Ended
	June 30,
	2021
		(in thousands)
Beginning balance	$	4,220
Provision for credit losses		63
Write-offs		(495)
Total	$	3,788

Available-for-sale debt securities. The amended guidance from ASU 2016-13 requires the measurement of expected credit losses for available-for-sale debt securities held at the reporting date over the remaining life based on historical experience, current conditions, and reasonable and supportable forecasts. The Company evaluated its investment portfolio under the available-for-sale debt securities impairment model guidance and determined the Company’s investment portfolio is composed of low-risk, investment grade securities.

Investments

Investments consist primarily of debt securities such as U.S. Treasuries, U.S. agency and municipal bonds. Management determines the appropriate classification of securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, irrespective of maturity date. Available-for-sale securities are carried at

fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity.

Risk and Uncertainties

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, and the full extent and duration of the impact of the COVID-19 pandemic on its business, its operations, and the global economy as a whole is not yet known. While the Company’s test volumes and overall average selling prices for its tests increased during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, the Company cannot predict the potential nature, magnitude and duration of the effects of the COVID-19 pandemic on the macroeconomic environment or its business.

Financial instruments that potentially subject the Company to credit risk consist of cash, accounts receivable and investments. The Company limits its exposure to credit loss by placing its cash in financial institutions with high credit ratings. The Company's cash may consist of deposits held with banks that may at times exceed federally insured limits. The Company performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

The Company performs evaluations of financial conditions for insurance carriers, patients, clinics and laboratory partners and generally does not require collateral to support credit sales. For the six months ended June 30, 2021, and 2020, there were no customers exceeding 10% of total revenues on an individual basis. As of June 30, 2021 and December 31, 2020, there were no customers with an outstanding balance exceeding 10% of net accounts receivable. 

Accumulated Other Comprehensive Income (Loss)

Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities.

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Beginning balance	$	3,197	$	5,666	$	4,259	$	919
Net unrealized gain (loss) on available-for-sale securities, net of tax		(756)		104		(1,818)		4,851
Ending balance	$	2,441	$	5,770	$	2,441	$	5,770

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) under its accounting standard codifications or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of accounting standards updates recently issued that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

Recently Adopted Accounting Pronouncements

Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 proposes new disclosure requirements for unrealized gains or losses recognized in other comprehensive income that are attributable to fair value

changes in assets and liabilities categorized within Level III of the fair value hierarchy, as well as quantitative information about significant unobservable inputs used to value such assets and liabilities. It eliminates the requirement to disclose the reasons for the transfers of assets and liabilities measured in fair value on a recurring basis between Level I and Level II. The Company has adopted this ASU as of January 1, 2020, which did not have a material impact on its consolidated financial statements.

Goodwill - Internal-Use Software

In August 2018, the FASB issued ASU 2018‑15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The Company adopted ASU 2018-15 as of January 1, 2020 using the prospective approach, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05. The standard requires measurement and recognition of expected credit losses for financial assets by requiring an allowance to be recorded as an offset to the amortized cost of such assets. For available-for-sale debt securities, expected credit losses should be estimated when the fair value of the debt securities is below their associated amortized costs. The Company adopted ASU 2016-13, as amended, effective January 1, 2020 using the modified retrospective method and recorded a cumulative-effect adjustment of $0.4 million in retained earnings as of January 1, 2020.

Collaborative Arrangements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company has adopted this standard as of January 1, 2020, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company has adopted this standard as of September 30, 2020, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

In October 2020, ASU 2020-10, Codification Improvements, was issued, which simplifies the existing codification. The guidance includes presentation disclosures for the amount of income tax expense or benefit related to other comprehensive income. ASU 2010-10 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early application of the amendments is permitted for public business entities for any annual or interim period for which financial statements have not been issued. The Company has adopted this standard

as of January 1, 2021, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Debt

In August 2020, ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) was issued which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company has adopted this standard as of January 1, 2021 using the modified retrospective approach. As a result of the adoption of ASU 2020-06, the Convertible Notes due May 2027 are no longer bifurcated into separate liability and equity components in the March 31, 2021 condensed consolidated balance sheet. Rather, the $287.5 million principal amount of the Company’s Convertible Notes was classified only as a liability in the March 31, 2021 condensed consolidated balance sheet. Upon adoption of ASU 2020-06, an adjustment was recorded to the Convertible Notes liability component, equity component (additional paid-in-capital) and retained earnings. The cumulative effect of the change was recognized as an adjustment to the opening balance of retained earnings at the date of adoption. The comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods. This adjustment was calculated based on the carrying amount of the Convertible Notes as if it had always been treated only as a liability. Further, an adjustment was recorded to the debt discount and issuance costs as if these had always been treated as a contra liability only. Interest expense related to the accretion of the Convertible Notes is no longer recognized.  Interest expense for the Convertible Notes for the three and six months ended June 30, 2021 would have been $2.3 million and $4.6 million higher without the adoption of ASU 2020-06, respectively. As such, net loss from continuing operations attributable to the Company per common share for the three and six months ended June 30, 2021 is $0.02 and $0.05 lower due to the effect of adoption of ASU 2020-06, respectively.

	December 31,		ASU 2020-06		January 1,
	2020		Adoption Adjustment		2021
	(in thousands)
Liabilities
Outstanding Principal	$	287,500	$	—	$	287,500
Unamortized debt discount and issuance cost		(85,007)		76,674		(8,333)
Net carrying amount	$	202,493	$	76,674	$	279,167
Equity
Additional paid-in-capital	$	(1,411,286)	$	82,872	$	(1,328,414)
Accumulated deficit		(929,318)		6,198		(923,120)

New Accounting Pronouncements Not Yet Adopted

In March 2020, ASU 2020-04, Reference Rate Reform (Topic 848) was issued which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationship, and sale or transfer of debt securities classified as held-to-maturity. Early adoption of this ASU is permitted, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company’s financial instruments that are in the scope of ASU 2020-04 include but are not limited to the UBS credit line agreement. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

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Revenue Recognition

6 Months Ended

Jun. 30, 2021

Revenue Recognition

Revenue Recognition

­­3. Revenue Recognition

The Company recognizes revenues when, or as, performance obligations in the contracts are satisfied, in the amount reflecting the expected consideration to be received from the goods or services transferred to the customers.

Product Revenues

Product revenues are derived from contracts with insurance carriers, laboratory partners and patients in connection with sales primarily related to prenatal genetic tests. The Company enters into contracts with insurance carriers with primarily payment terms related to tests provided to the patients who have health insurance coverage. Insurance carriers are considered as third-party payers on behalf of the patients, and the patients are considered as the customers who receive genetic test services. Tests may be billed to insurance carriers, patients, or a combination of insurance carriers and patients. Further, the Company sells tests to a number of domestic and international laboratory partners and identifies the laboratory partners as customers provided that there is a test services agreement between the two parties.

A performance obligation represents a promise in a contract to transfer a distinct good or service to a customer, which represents a unit of accounting in accordance with ASC 606. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once the Company has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. A portion of the consideration should be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company evaluates its contracts with insurance carriers, laboratory partners and patients and identifies the performance obligations in those contracts, which are the delivery of the test results.

The total consideration which the Company expects to collect in exchange for the Company’s products is an estimate and may be fixed or variable. Consideration includes reimbursement from both patients and insurance carriers, adjusted for variable consideration related to disallowed cases, discounts, refunds and doubtful accounts, and is estimated using the expected value approach. For insurance carriers with similar reimbursement characteristics, the Company uses a portfolio of relevant historical data to estimate variable consideration and total collections for the Company’s products. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. The consideration expected from laboratory partners usually includes a fixed amount, but it can be variable depending on the volume of tests performed, and the Company determines the variable consideration using the expected value approach. For insurance carriers, laboratory partners and patients, the Company allocates the total consideration to a single performance obligation, which is the delivery of the test results to the customers.

When assessing the total consideration for insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds.

The Company generally bills an insurance carrier, a laboratory partner or a patient upon delivery of test results. The Company also bills patients directly for out-of-pocket costs involving co-pays and deductibles that they are responsible for. Tests billed to insurance carriers and directly to patients usually take an average of nine to twelve months to collect payment, and for tests billed to laboratory distribution partners, the average collection cycle takes approximately two to three months. At times, the Company may or may not get reimbursed for the full amount billed. Further, the Company may not get reimbursed at all for tests performed if such tests are not covered under the insurance carrier’s reimbursement policies or the Company is not a qualified provider to the insurance carrier, or if the tests were not previously authorized.

Product revenue is recognized in an amount equal to the total consideration (as described above) at a point in time when the test results are delivered. The Company reserves certain amounts in other accrued liabilities on the balance sheet in anticipation of requests for refunds of payments previously made by insurance carriers, which are accounted for as reductions in product revenues in the statement of operations and comprehensive loss. During the three months ended June 30, 2021 and 2020, $1.7 million and $0.6 million, respectively, were released from amounts previously held in reserves in other accrued liabilities, and recognized as product revenue. During the six months ended June 30, 2021 and 2020, $3.0

million and $1.6 million, respectively, were released from amounts previously held in reserves in other accrued liabilities, and recognized as product revenue. The release of amounts reserved were recognized as product revenue within that period.

Licensing and Other Revenues

The Company recognizes licensing revenues from its cloud-based distribution service offering, Constellation, by granting licenses to its licensees to use certain of the Company’s proprietary intellectual properties and cloud-based software and IVD kits. The Company also recognizes revenues from the Signatera research use only (“RUO”) offering and from its agreements with Qiagen LLC, (“Qiagen”), BGI Genomics Co., Ltd. (“BGI Genomics”), and Foundation Medicine, Inc. (“Foundation Medicine”).

Constellation

The laboratory partners with whom the Company enters into a licensing arrangement represent the licensees and are identified as customers. The licensees do not have the right to possess the Company’s software, but rather receive services through the cloud software. These arrangements often include: (i) the delivery of the services through the cloud software, (ii) the necessary support and training, and (iii) the IVD kits to be consumed as tests are processed. The Company does not consider the software as a service, the support or the training as being distinct in the context of such arrangements, and therefore they are combined as a single performance obligation. The software, support and training are delivered simultaneously to the licensees over the term of the arrangement.

The Company bills the majority of licensees, who process the tests in their laboratories, a fixed price for each test processed. Licensing revenues are recognized as the performance obligations are satisfied (i.e., upon the delivery of each test) and reported in licensing and other revenues in the Company’s statements of operations and comprehensive loss.

Signatera

The Company enters into agreements with pharmaceutical companies to utilize the Company’s Signatera tests typically to study new cancer treatments or to validate the outcomes of clinical trials for which the pharmaceutical companies are identified as customers. Such arrangements generally involve performing whole exome sequencing (“WES”) services and the testing of patient samples to detect cancer mutations using its Signatera test. Each test is billable to customers and the personalized cancer profile also makes each test distinct within the context of the contract as customers can exercise control over the test results upon delivery. The Company allocates the contract price to each test using the stand-alone selling price for each service and recognizes the test processing revenue as individual test results are delivered to customers.

Qiagen

In March 2018, the Company entered into a License, Development and Distribution Agreement (the “Qiagen Agreement”) with Qiagen under which the Company granted Qiagen a license to develop, manufacture, distribute and commercialize NGS-based genetic testing assays and sequencing systems utilizing such assays, which incorporate the Company’s proprietary technology. According to the terms of the Qiagen Agreement, the Company is initially entitled to receive an upfront license fee and prepaid royalties totaling $40.0 million, which was fully collected in 2018. All or a portion of the prepaid royalties are refundable in limited circumstances. In addition, the Company was entitled to potential milestone payments from Qiagen upon the successful achievement of certain volume, regulatory and commercial milestones, and tiered royalties of $10.0 million, of which the Company received $5.0 million due December 31, 2018. The Qiagen Agreement has a term of 10 years and expires in March 2028, and it may be terminated earlier in certain circumstances. Upon termination of the Qiagen Agreement, the license granted to Qiagen will also terminate, except in certain limited circumstances. The Company provided to Qiagen standard indemnification protections, which is part of an assurance that the license meets the contract’s specifications and is not an obligation to provide goods or services.  

Effective in March 2020, the Company terminated the Qiagen Agreement. Subsequently, in March 2021, the Company and Qiagen signed a Termination and Settlement Agreement where the Company agreed to refund a net $10

million as a result of the termination. The remaining $28.6 million of deferred revenue was recognized as other licensing and other revenue in the first quarter of 2021.

BGI Genomics

In February 2019, the Company entered into a License Agreement (the “BGI Genomics Agreement”) with BGI Genomics to develop, manufacture, and commercialize NGS-based genetic testing assays for clinical and commercial use. The BGI Genomics Agreement has a term of ten years and expires in February 2029. According to the BGI Genomics Agreement, the Company is entitled to a total of $50 million, comprised of upfront technology license fees, prepaid royalties relating to future sales of licensed products and performance of assay interpretation services, and milestone payments. During the three months ended June 30, 2019, the Company received $35.6 million, net of withholding taxes, of these amounts. The Company recorded a receivable of $2.5 million upon achieving the first milestone as of June 30, 2019, which was received in January 2021. Also, as required by the BGI Genomics Agreement, in June 2019 the Company prepaid $6.0 million to BGI Genomics for future sequencing services and $4.0 million for future sequencing equipment. These advance payments for equipment and services to be received in future periods aggregating to $10.0 million were recorded in long-term advances on the Company’s Condensed Consolidated Balance Sheet.

Pursuant to the BGI Genomics Agreement, the Company licensed its intellectual property and will provide development services. Following completion of development services, the Company will provide assay interpretation services over the term of the BGI Genomics Agreement. The Company concluded that the license is not a distinct performance obligation as it does not have a stand-alone value to BGI Genomics apart from the related development services. Therefore, license and related development services, for each NIPT and Oncology product, represents a single performance obligation.

The Company is responsible for granting a license to specified intellectual property and performing certain development activities to customize its genetic testing assays for oncology and NIPT for use with BGI Genomics’ sequencing instruments and proprietary technology platform. Revenue associated with these performance obligations is recognized over time using the input method, based on costs incurred to perform the development services, since the level of costs incurred over time best reflect the transfer of development services. Revenue associated with the assay interpretation services will be recognized upon delivery of these services. Funds received in advance are recorded as deferred revenue and will be recognized as the related services are delivered.

The initial transaction price was primarily comprised of license and milestone fees. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. Certain milestone and license fees were constrained and not included in the transaction price due to the uncertainties of research and development. The Company re-evaluates the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The allocation of the transaction price was performed based on standalone selling prices, which are based on estimated amounts that the Company would charge for a performance obligation if it were sold separately.

In accordance with ASC 340-40, any incremental costs incurred to obtain a contract with a customer are required to be capitalized and amortized over the period in which the goods and services are transferred to the customer. The Company has elected to apply a practical expedient under ASC 340-40 to recognize the incremental costs of obtaining a contract as an expense when incurred provided that the amortization period of such costs, if capitalized, is one year or less. The incremental costs incurred in connection with the BGI Genomics arrangement is not material on an accumulated basis and therefore will not be capitalized on the balance sheet but will be expensed as incurred.

Foundation Medicine, Inc.

In August 2019, the Company entered into a License and Collaboration Agreement (the “Foundation Medicine Agreement”) with Foundation Medicine to develop and commercialize personalized circulating tumor DNA monitoring assays, for use by biopharmaceutical and clinical customers who order Foundation Medicine’s FoundationOne CDx. The Foundation Medicine Agreement has an initial term of five years, expiring in August 2024, with automatic renewals thereafter for successive one-year terms, unless the Foundation Medicine Agreement is earlier terminated in accordance with its terms. Natera and Foundation Medicine will share the revenues generated from both biopharmaceutical and clinical customers in accordance with the terms of the Foundation Medicine Agreement. The Foundation Medicine Agreement provides for approximately $13.3 million in upfront licensing fees and prepaid revenues payable to the Company, and up to approximately $32.0 million in minimum annual payments and payments tied to the Company’s achievement of certain developmental, regulatory, and commercial milestones. As of December 31, 2019, the Company received $16.3 million of these amounts, of which $3.0 million was for achieving certain milestones, and $13.3 million was for licensing fees and prepaid revenue. There was an additional milestone met in May 2021. The Company accrued a $1.0 million milestone payment against accounts receivable and short-term deferred revenue. This milestone was paid in early July 2021. No other payments have been received in the six months ending June 30, 2021.

Pursuant to the Foundation Medicine Agreement, the Company will provide development services in conjunction with granting the use of the Company’s intellectual property. Following completion of those development services, the Company is currently providing RUO assay testing services over the term of the agreement. The Company has concluded that the license is not a distinct performance obligation as it is highly interrelated and interdependent with the related development services. Therefore, license and related development services represent a single performance obligation.

The Company is responsible for providing the technology license and certain development services that are required to customize its proprietary Signatera test to work with Foundation Medicine’s FoundationOne CDx. The intellectual property has been licensed to Foundation Medicine for the customized test. In addition, the Company is responsible for delivering clinical study plans in order to demonstrate efficacy of the customized test which has commenced in the second quarter of 2021. Revenues associated with each of the performance obligations are recognized over time using the input method, based on costs incurred to perform the development services, since the level of costs incurred over time best reflect the transfer of development services. Revenue associated with the assay testing services will be recognized upon delivery of these services. Funds received in advance are recorded as deferred revenue and will be recognized as the related services are delivered. As of June 30, 2021, the Company started providing biopharma RUO services for which partial revenue is recognized from the earlier prepaid $2.5 million royalties. In addition, in the second quarter of 2021, the Company has initiated clinical trial studies for which no revenue has been recognized as of June 30, 2021.

The initial transaction price was primarily comprised of license and milestone fees. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. Certain milestone fees were constrained and not included in the transaction price due to the uncertainties of research and development. The Company re-evaluates the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The allocation of the transaction price was performed based on standalone selling prices, which are based on estimated amounts that the Company would charge for a performance obligation if it were sold separately.

In accordance with ASC 340-40, any incremental costs incurred to obtain a contract with a customer are required to be capitalized and amortized over the period in which the goods and services are transferred to the customer. The Company has elected to apply a practical expedient under ASC 340-40 to recognize the incremental costs of obtaining a contract as an expense when incurred provided that the amortization period of such costs, if capitalized, is one year or less. 

Disaggregation of Revenues

The Company measures its performance results primarily based on revenues recognized from the three categories described below. The following table shows disaggregation of revenues by payer types:

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
(in thousands)
Insurance carriers	$	118,396	$	67,630	$	218,795	$	138,302
Laboratory and other partners		15,599		13,041		60,134		28,724
Patients		8,031		5,801		15,413		13,458
Total revenues	$	142,026	$	86,472	$	294,342	$	180,484

The following table presents total revenues by geographic area based on the location of the Company’s payers:

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
(in thousands)
United States	$	134,814	$	80,757	$	279,771	$	167,488
Americas, excluding U.S.		992		721		1,805		1,503
Europe, Middle East, India, Africa		4,265		3,584		8,724		7,060
Asia Pacific and Other		1,955		1,410		4,042		4,433
Total revenues	$	142,026	$	86,472	$	294,342	$	180,484

The following table summarizes the Company’s beginning and ending balances of accounts receivable and deferred revenues:

	Balance at		Balance at
	June 30,		December 31,
(in thousands)	2021		2020
Assets:
Accounts receivable	$	100,130	$	78,565
Liabilities:
Deferred revenue, current portion	$	10,647	$	50,125
Deferred revenue, long-term portion		23,562		22,805
Total deferred revenues	$	34,209	$	72,930

The following table shows the changes in the balance of deferred revenues during the period:

	Deferred
	Revenues
	(in thousands)
Balance at December 31, 2020	$	72,930
Increase in deferred revenues		3,474
Refunds of revenues previously deferred		(10,000)
Revenue recognized during the period that was included in deferred revenues at the beginning of the period		(30,839)
Revenue recognized from performance obligations satisfied within the same period		(1,356)
Balance at June 30, 2021	$	34,209

During the six months ended June 30, 2021, revenue recognized that was included in the deferred revenue balance at the beginning of the period totaled $30.8 million, with approximately a net $2.0 million related to BGI Genomics and Foundation Medicine, and $28.6 million related to Qiagen, with the remaining $0.2 million related to genetic testing services. The current portion of deferred revenue includes $3.2 million from the BGI Genomics Agreement and $5.1 million from the Foundation Medicine Agreement.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

The Company's financial assets and liabilities carried at fair value are comprised of investment assets that include money market and investments.

The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

Level I: Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access.

Level II: Observable market-based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves.

Level III: Inputs that are unobservable data points that are not corroborated by market data.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis:

	June 30, 2021								December 31, 2020
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Money market deposits	$	5,509	$	—	$	—	$	5,509	$	28,990	$	—	$	—	$	28,990
U.S. Treasury securities		434,639		—		—		434,639		597,744		—		—		597,744
Corporate bonds and notes		—		14,248		—		14,248		—		12,328		—		12,328
Municipal securities		—		68,545		—		68,545		—		78,534		—		78,534
Total financial assets	$	440,148	$	82,793	$	—	$	522,941	$	626,734	$	90,862	$	—	$	717,596

Fair Value of Long-Term Debt:

As of June 30, 2021, the estimated fair value of the Convertible Notes, which are not presented at fair value on the Condensed Consolidated Balance Sheets as of June 30, 2021, was $871.0 million and was based upon observable, Level 2 inputs, including pricing information from recent trades of the Convertible Notes (see Note 10, Debt).

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Financial Instruments

6 Months Ended

Jun. 30, 2021

Financial Instruments

Financial Instruments

5. Financial Instruments

The Company elected to invest a portion of its cash assets in conservative, income earning, and liquid investments. Cash equivalents and investments, all of which are classified as available-for-sale securities, consisted of the following:

	June 30, 2021								December 31, 2020
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
	(in thousands)
Money market deposits	$	5,509	$	—	$	—	$	5,509	$	28,990	$	—	$	—	$	28,990
U.S. Treasury securities (1)		432,610		2,180		(151)		434,639		594,252		3,512		(20)		597,744
Corporate bonds and notes (1)		14,284		2		(38)		14,248		12,331		2		(5)		12,328
Municipal securities		68,097		505		(57)		68,545		77,764		796		(26)		78,534
Total	$	520,500	$	2,687	$	(246)	$	522,941	$	713,337	$	4,310	$	(51)	$	717,596
Classified as:
Cash equivalents (2)							$	5,509							$	28,990
Short-term investments								517,432								688,606
Total							$	522,941							$	717,596

(1) Per the Company’s investment policy, all debt securities are classified as short-term investments irrespective of holding period.  

(2) Cash equivalents includes cash sweep accounts and U.S. Treasury money market mutual funds.

The Company invests in U.S. Treasuries, U.S. agency and high quality municipal bonds which mature at par value and are all paying their coupons on schedule. The Company has therefore concluded there is currently no other than temporary impairment of its investments and will continue to recognize unrealized gains and losses in other comprehensive income (loss). During the six months ended June 30, 2021 and 2020, the Company sold $31.1 million and $11.5 million of investments, respectively. During the six months ended June 30, 2021, the amount of gross realized gains and realized losses upon sales of investments were insignificant. The Company uses the specific investment identification method to calculate realized gains and losses and amounts reclassified out of other comprehensive income to net income. As of June 30, 2021, the Company had 23 investments in an unrealized loss position in its portfolio. An allowance for credit losses was not necessary for the second quarter of 2021 since the investments are low risk, investment grade securities. The Company has assessed the unrealized loss position for available-for-sale debt securities for which an allowance for credit losses has not been recorded. The fair value for investment securities at an unrealized loss position as of June 30, 2021 was $158.8 million. The aggregate amount of unrealized losses of these securities were not significant, and the impact of the securities in a continuous loss position to the condensed consolidated statements of operations and comprehensive loss were not material as of June 30, 2021.

The following table summarizes the Company’s portfolio of available-for-sale securities by contractual maturity as of June 30, 2021:

	June 30, 2021
	Amortized Cost		Fair Value
	(in thousands)
Less than or equal to one year	$	213,114	$	213,493
Greater than one year but less than five years		301,877		303,939
Total	$	514,991	$	517,432

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Balance Sheet Components

6 Months Ended

Jun. 30, 2021

Balance Sheet Components

Balance Sheet Components

6. Balance Sheet Components

Property and Equipment, net

The Company’s property and equipment consisted of the following:

		June 30,		December 31,
	Useful Life	2021		2020
		(in thousands)
Machinery and equipment	3-5 years	$	58,432	$	51,001
Furniture and fixtures	3 years		1,376		1,376
Computer equipment	3 years		2,772		2,428
Capitalized software held for internal use	3 years		7,582		7,417
Leasehold improvements	Lesser of useful life or lease term		14,952		14,810
Construction-in-process			19,087		6,370
			104,201		83,402
Less: Accumulated depreciation and amortization			(55,317)		(50,054)
Total Property and Equipment, net		$	48,884	$	33,348

All of the Company’s long-lived assets are located in the United States.

During the six months ended June 30, 2021, the increase in net property and equipment was due to purchases of new equipment for the Company’s laboratories located in Texas and California to expand testing capabilities, offset by depreciation expense of $5.3 million recorded in the six months ended June 30, 2021. The Company did not incur an impairment charge during the six months ended June 30, 2021.

Accrued Compensation

The Company’s accrued compensation consisted of the following:

	June 30,		December 31,
	2021		2020
	(in thousands)
Accrued paid time off	$	2,439	$	2,260
Accrued commissions		14,104		12,686
Accrued bonuses		7,984		9,635
Other accrued compensation		6,315		5,790
Total accrued compensation	$	30,842	$	30,371

Other Accrued Liabilities

The Company’s other accrued liabilities consisted of the following:

	June 30,		December 31,
	2021		2020
	(in thousands)
Reserves for refunds to insurance carriers		22,301	$	17,366
Accrued charges for third-party testing		10,422		5,141
Testing and laboratory materials from suppliers		7,805		2,720
Marketing and corporate affairs		5,374		3,325
Legal, audit and consulting fees		4,364		4,189
Accrued shipping charges		1,276		1,604
Sales tax payable		1,501		1,723
Accrued third-party service fees		2,482		2,355
Clinical trials and studies		2,419		2,353
Operating lease liabilities, current portion		6,330		7,300
Fixed asset purchases		1,740		1,691
Other accrued interest		1,078		1,078
Deposits held for sublease		10		—
Other accrued expenses		19,041		9,562
Total other accrued liabilities	$	86,143	$	60,407

Reserves for refunds to insurance carriers include overpayments from and amounts to be refunded to insurance carriers, and additional amounts that the Company estimates for potential refund requests during the period. When the Company releases these previously accrued amounts, they are recognized as product revenues in the statements of operations and comprehensive loss.

The following table summarizes the reserve balance and activities for refunds to insurance carriers for the six months ended June 30, 2021:

	June 30,		June 30,
	2021		2020
	(in thousands)
Beginning balance	$	17,366		9,410
Additional reserves		10,960		8,563
Refunds to carriers		(3,054)		(3,251)
Reserves released to revenue		(2,971)		(1,622)
Ending balance	$	22,301	$	13,100

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Leases

6 Months Ended

Jun. 30, 2021

Leases

Leases

7. Leases

Operating Leases

In September 2015, the Company’s subsidiary entered into a long-term lease agreement for laboratory and office space totaling approximately 94,000 square feet in Austin, Texas. The lease term is 132 months beginning in December 2015 and expiring in November 2026 with monthly payments beginning in December 2016.

In October 2016, the Company entered into a lease directly with its landlord for laboratory and office spaces at its facilities located in San Carlos, California. The Company currently occupies approximately 113,000 square feet comprised of two office spaces (the “First Space” and the “Second Space”). The First Space covers approximately 88,000 square feet, and the Second Space totals approximately 25,000 square feet. The term of this lease is approximately 84 months and expires in October 2023. This lease contains an option to renew the lease term for five years, but the fair

market rent amount upon renewal is not available from the landlord. In January 2021, the Company entered into an amendment of the lease to extend the term for 48 months to October 2027. The combined annual rent for the First Space and Second Space will be $9.3 million commencing in October 2023.

The Company entered into a lease agreement commencing June 2018 for its cord blood tissue storage facility in Tukwila, Washington that covers approximately 10,000 square feet. The lease term is 62 months expiring in July 2023. The Company has the option to extend this lease for five years, and the fair market rent upon renewal is not determinable. However, since the Company sold its business related to cord blood and tissue storage in September 2019, the Company has subleased the facility and does not intend to exercise its option to renew the facility upon expiration.

In addition, the Company entered into a sublease agreement in June 2019 with a third party to sublease 25,879 square feet of space located on the third floor of the San Carlos, California building while maintaining its primary obligation as the intermediate lessor. The term of this lease is approximately 48 months commencing in October 2019 and expiring in September 2023. The annual lease payment starts at $1.9 million and will escalate annually commencing in October 2020. In February 2021, the Company entered into an amendment of the San Carlos sublease agreement whereas the third party will surrender 25,879 rentable square feet by the end of the year. For the six months ended June 30, 2021, the Company had noncash investing activities of $30.1 million primarily related to additional right-of-use assets of which $29.7 million was a result of the San Carlos lease extension which was accounted for as a modification under ASC 842.

The Company entered into a lease agreement in November 2020 to lease 11,395 square feet of space located in South San Francisco, California over a 36-month term. The premises will be used for general office, laboratory and research use. The annual lease payment starts at $0.9 million and will escalate annually commencing in December 2021.

The Company has also historically entered into leases of individual workspaces at various locations on both a month-to-month basis without an established lease term, and more recently for certain locations, have committed to terms approximating three to five years. For the facilities without a committed lease term, the Company has elected to not recognize them as the right-of-use assets on the balance sheet as they are all considered short-term leases. For individual workspaces where the committed lease term exceeds one year, the Company has recorded a right-of-use asset.

The operating lease right-of-use assets are classified as noncurrent assets in the balance sheet. The corresponding lease liabilities are separated into current and long-term portions as follows:

	June 30,
	2021
		(in thousands)
Operating lease liabilities, current portion included in other accrued liabilities	$	6,330
Operating lease liabilities, long-term portion		49,519
Total operating lease liabilities	$	55,849

The initial recognition of the operating lease liabilities was measured as the present value of the future minimum lease payments using a discount rate determined as of January 1, 2019. The operating right-of-use assets was calculated as the operating lease liabilities discounted at the present value, less the amount of unamortized tenant improvement allowance and deferred rent. The discount rate used was the Company’s incremental borrowing rate given that the implicit rate to each lease was not readily determinable. In accordance with ASC 842, the incremental borrowing rate was estimated as the annual percentage yield resulting from a corporate debt financing over a loan term approximating the remaining term of each lease, with the effect of certain credit risk rating. As of June 30, 2021, the weighted-average remaining lease term was 3.85 years and the weighted-average discount rate was 7.49%.

The Company continues to recognize lease expense on a straight-line basis. The lease expense includes the amortization of the right-of-assets with the associated interest component estimated by applying the effective interest method. For the three months ended June 30, 2021 and 2020, total lease expense of $2.7 million and $1.9 million was recognized in the condensed statements of operations and comprehensive loss, respectively. For the six months ended June 30, 2021 and 2020, total lease expense of $5.4 million and $3.9 million was recognized in the condensed statements of operations and comprehensive loss, respectively. Cash paid for amounts in the measurement of operating lease liabilities totaled $2.5 million and $2.2 million for the three months ended June 30, 2021 and 2020, respectively.  Cash paid for amounts in the measurement of operating lease liabilities totaled $5.0 million and $4.4 million for the six months ended June 30, 2021 and 2020, respectively.

The present value of the future annual minimum lease payments under all non-cancellable operating leases as of June 30, 2021 are as follows:

	Operating Leases
	(in thousands)
Year ending December 31:
2021 (remaining 6 months)	$	5,086
2022		10,404
2023		11,071
2024		11,889
2025		12,186
2026 and thereafter		20,064
		70,700
Less: imputed interest		(14,851)
Operating lease liabilities	$	55,849

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies

Commitments and Contingencies

8. Commitments and Contingencies

Legal Proceedings

From time to time, the Company is involved in disputes, litigation, and other regulatory or administrative  actions, including those with respect to intellectual property, employment, testing, billing, reimbursement  and other matters. Such actions may include allegations of negligence, products/professional liability or other legal claims, and could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. The Company is aggressively defending and/or prosecuting its current litigation matters, but cannot provide any assurance as to the ultimate outcome or that an adverse resolution would not have a material adverse effect on its financial condition and results of operations. There are many uncertainties associated with any litigation and these actions or other third party claims against the Company, including by governmental entities, or by the Company against third parties, may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If this were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected.

The Company assesses legal contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. When evaluating legal contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation or other matters may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of its potential liability. During the periods presented, the Company has not recorded any accrual for loss contingencies associated with such legal proceedings or other matters, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount or range of any possible loss is reasonably estimable.

Intellectual Property Litigation Matters.

The Company is involved in patent litigation against CareDx, Inc. (“CareDx”), in the United States District Court for the District of Delaware (“CareDx’s Patent Case”). CareDx alleges, in a complaint filed jointly with the Board of Trustees of the Leland Stanford Junior University in March 2019 and amended in March 2020, that the Company infringed three patents. The complaint seeks unspecified damages and injunctive relief. The Company has also alleged infringement by CareDx of two of the Company’s patents, seeking unspecified damages and injunctive relief. The cases have been consolidated and the Court has set a trial date of April 25, 2022. The cases are currently stayed pending a ruling on the Company’s motion for summary judgment challenging the patent eligibility of the asserted patents.

The Company has filed suit against ArcherDX, Inc. (“ArcherDX”), in the United States District Court for the District of Delaware, alleging, in complaints filed in January, April, and August of 2020, which cases were consolidated in September 2020, that certain ArcherDX DNA oncology products infringe five of the Company’s patents. In June 2020, ArcherDX filed a motion to dismiss aspects of the Company’s case, including to invalidate several of the Company’s asserted patents. That motion was denied in its entirety in October 2020. In January 2021, the Company filed a second amended complaint naming an additional Archer DX entity, ArcherDx LLC, and Invitae Corp. as defendants. The Company is seeking unspecified monetary damages and injunctive relief. A jury trial is set for May 16, 2022.

In May 2021, Invitae Corp. (“Invitae”) filed a complaint against the Company alleging infringement of one patent and seeking monetary damages and injunctive relief. In June 2021, the Company filed a motion to dismiss Invitae’s complaint in its entirety.

The Company is the subject of a lawsuit filed against it by Ravgen, Inc. (“Ravgen”) in June 2020 in the United States District Court for the Western District of Texas, alleging infringement of two Ravgen patents. The complaint seeks monetary damages and injunctive relief. Trial is set for December 13, 2021.

The Company filed suit against Progenity, Inc. (“Progenity”), in June 2020 in the United States District Court for the Western District of Texas and in the United States District Court for the Northern District of Texas, in each case alleging that Progenity’s NIPT test infringes six of the Company’s patents. The complaints seek treble damages and injunctive relief. In July 2020, Progenity filed suit against the Company in the United States District Court for the Southern District of California, seeking declaratory judgment of non-infringement of the Company’s asserted patents. Progenity also petitioned the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and Trademark Office for inter partes review of all of the Company’s asserted patents. The PTAB instituted review of three of the petitions and set trial for March 7, 2022, and denied institution of the other three petitions. On August 3, 2021, the parties entered into a settlement agreement to settle the matters described above.

In October 2020, the Company filed suit against Genosity Inc. (“Genosity”), in the United States District Court for the District of Delaware, alleging that various Genosity oncology products infringe one of the Company’s patents and seeking unspecified monetary damages and injunctive relief. In March 2021, the Company filed a motion to dismiss certain of Genosity’s affirmative defenses and a counterclaim.

In January 2021, the Company filed suit against Inivata, Inc. and Inivata Ltd. (collectively “Inivata”) in the United States District Court for the District of Delaware, alleging that various Inivata oncology products infringe two of the Company’s patents. The complaint seeks unspecified monetary damages and injunctive relief. In April 2021, Inivata filed a motion to dismiss the Company’s complaint.

Other Litigation Matters.

In August 2019, a suit was filed against the Company in the Circuit Court of Cook County, Illinois by a patient alleging claims relating to a discordant test result and seeking monetary damages. The suit was dismissed in June 2021.

The Company is also the subject of a lawsuit filed by CareDx against the Company in April 2019 in the United States District Court for the District of Delaware, alleging false advertising, trademark disparagement, unfair competition, and unfair or deceptive trade practices based on statements describing studies that concern the Company’s technology and CareDx’s technology (“CareDx’s Advertising Case”). The complaint seeks unspecified damages and injunctive relief. In May 2019, the Company filed a motion to dismiss the entirety of CareDx’s Advertising Case for failure to state a claim, following which in February 2020, CareDx filed an amended complaint withdrawing its trademark disparagement claim. Also in February 2020, the Company filed a counterclaim against CareDx in the United States District Court for the District of Delaware, alleging false advertising, unfair competition and deceptive trade practices and seeking unspecified damages and injunctive relief. The parties cross-moved for partial summary judgment, which was denied in April 2021. A jury trial is set for October 25, 2021.

The Company is involved in litigation against Guardant, Inc. (“Guardant”). On or about May 27, 2021, Guardant filed suit against the Company in the United States District Court of the Northern District of California alleging false advertising and related claims and seeking unspecified damages and injunctive relief.  On or about May 28, 2021, the Company filed suit against Guardant in the Western District of Texas, alleging false advertising and related claims. The Company has voluntarily dismissed its Texas suit against Guardant. In the California action, the Company has answered Guardant’s complaint and has asserted its claims as counterclaims, seeking unspecified damages and injunctive relief. On August 3, 2021, Guardant moved to dismiss the Company’s counterclaims. 

Director and Officer Indemnifications

As permitted under Delaware law, and as set forth in the Company’s Amended and Restated Certificate of Incorporation and its Amended and Restated Bylaws, the Company indemnifies its directors, executive officers, other officers, employees and other agents for certain events or occurrences that may arise while in such capacity. The maximum potential amount of future payments the Company could be required to make under this indemnification is unlimited; however, the Company has insurance policies that may limit its exposure and may enable it to recover a portion of any future amounts paid. Assuming the applicability of coverage, the willingness of the insurer to assume coverage, and subject to certain retention, loss limits and other policy provisions, the Company believes any obligations under this indemnification would not be material, other than an initial $2.5 million for securities related claims. However, no assurances can be given that the covering insurers will not attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case the Company may incur substantial liabilities as a result of these indemnification obligations.  

Third-Party Payer Reimbursement Audits

From time to time, the Company receives recoupment requests from third-party payers for alleged overpayments. The Company disagrees with the contentions of pending requests and/or has recorded an estimated reserve for the alleged overpayments.  

Contractual Commitments

The following table sets forth the material contractual commitments as of June 30, 2021 with a remaining term of at least one year:

Party	Commitments		Expiry Date
		(in thousands)
Material supplier	$	14,207	June 2026
Application service providers		31,853	March 2026
Other material suppliers		16,662	Various
Total	$	62,722

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2021

Stock-Based Compensation

Stock-Based Compensation

9. Stock-Based Compensation

2015 Equity Incentive Plan

General.   The Company’s board of directors adopted its 2015 Equity Incentive Plan (the “2015 Plan”) in June 2015. The 2015 Plan replaced all of its prior stock plans.

Share Reserve.   The initial number of shares of the Company’s common stock available for issuance under the 2015 Plan was 3,451,495 shares. The number of shares reserved for issuance under the 2015 Plan will be increased automatically on the first business day of each fiscal year, commencing in 2016, by a number equal to the smallest of:

● 3,500,000 shares;

● 4% of the shares of common stock outstanding on the last business day of the prior fiscal year; or

● the number of shares determined by the Company’s board of directors.

Stock options vest as determined by the compensation committee. In general, they will vest over a four-year period following the date of grant. Stock options expire at the time determined by the compensation committee but in no event more than ten years after they are granted. These awards generally expire earlier if the participant's service terminates earlier.

Restricted Shares and Stock Units.    Restricted shares and stock units may be awarded under the 2015 Plan in return for any lawful consideration, and participants who receive restricted shares or stock units generally are not required to pay cash for their awards. In general, these awards will be subject to vesting. Vesting may be based on length of service, the attainment of performance-based milestones or a combination of both, as determined by the compensation committee.

Performance-based Awards

The Company grants certain senior-level executives performance stock options and units which vest based on either market and time-based service conditions or performance and time-based service conditions, which are referred to herein as performance-based awards. The Company assessed the performance-based awards with the appropriate valuation method and has recognized the applicable stock-based compensation expense. The following table summarizes the performance-based awards as of June 30, 2021:

Period Granted	Options Granted	RSUs Granted	Options Vested	RSUs Vested	Milestone	Valuation Method
(in thousands)
Q1 2019	200	300	169	260	(1)	Monte-Carlo Simulation
Q2 2019	—	188	—	81	(2)	Fair Market Value
Q3 2019	—	50	—	38	(1)	Monte-Carlo Simulation
Q1 2020	150	300	94	216	(1)	Monte-Carlo Simulation
Q1 2020	—	436	—	404	(3)	Fair Market Value
Q1 2020	129	—	129	—	(3)	Black-Scholes-Merton
Q2 2020	—	21	—	21	(3)	Fair Market Value
Q3 2020	10	—	10	—	(4)	Black-Scholes-Merton
Q3 2020	—	27	—	13	(3)	Fair Market Value
Q4 2020	—	32	—	6	(1)	Monte-Carlo Simulation
Q4 2020	—	22	—	2	(5)	Fair Market Value
Q1 2021	150	125	—	—	(1)	Monte-Carlo Simulation
Q1 2021	—	279	—	10	(3)	Fair Market Value
Q2 2021	163	—	—	—	(1)	Monte-Carlo Simulation
Q2 2021	29	—	—	—	(3)	Black-Scholes-Merton
Q2 2021	—	7	—	—	(3)	Fair Market Value

________________________________

(1) The awards will vest based on the achievement of certain values of the Company’s common stock at multiple thresholds within certain periods and are contingent upon the completion of requisite service through the date of such vesting.

(2) The vesting of the awards will be triggered after the end of the achievement milestone, as measured by the Company.

(3) The awards will vest based on achievement of a revenue target and are contingent upon the completion of requisite service through the date of such vesting.

(4) The awards vest based on achievement of a reimbursement target.

​
(5) The awards will vest based on achievement of certain revenue and recruiting targets.

The Company has recognized $19.0 million and $30.0 million in stock-based compensation for performance-based awards for the three and six months ended June 30, 2021, respectively. The Company has recognized $3.8 million and $5.2 million in stock-based compensation for performance-based awards for the three and six months ended June 30, 2020, respectively.

   The Company estimated the fair value of performance-based awards with market conditions using a Monte-Carlo simulation model with the following inputs for the period ended June 30, 2021:

	June 30,
	2021
Risk-free interest rate		0.80	%	—	1.42	%
Expected dividend yield					0.00	%
Expected volatility					60	%
Expected term (years)		7.25		—	10.00

Employee Stock Purchase Plan

During the period ended June 30, 2021, there have not been any changes to the Company’s 2015 Natera, Inc. Employee Stock Purchase Plan (the “ESPP”) as disclosed in Form 10-K for the fiscal year ended December 31, 2020.  The Company has made 2,940,084 shares available for issuance under the Plan as of June 30, 2021, a number that is automatically increased by the least of (i) 1% of the total number of shares of common stock actually issued and outstanding on the last business day of the prior fiscal year, (ii) 880,000 shares of common stock (subject to certain adjustments pursuant to Subsection (c) below), or (iii) a number of shares of common stock determined by the Company’s board of directors.

The first offering period of 2021 started on November 1, 2020 and ended on April 30, 2021, and 106,435 shares were purchased for proceeds of $6.1 million. The second offering period of 2021 began on May 1, 2021 and will end on October 31, 2021. As of June 30, 2021, no shares have been purchased in the second offering period.

Stock Options

The following table summarizes option activity for the six months ended June 30, 2021:

	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
(in thousands, except for contractual life and exercise price)	Grant	Shares	Price		Life	Value
					(in years)
Balance at December 31, 2020	3,197	6,707	$	11.19	6.04	$	592,468
Additional shares authorized	3,446	—
Options granted	(390)	390	$	104.01
Options exercised	—	(782)	$	8.73
Options forfeited/cancelled	31	(31)	$	13.80
RSUs granted	(1,355)	—
RSUs forfeited/cancelled	164	—
Balance at June 30, 2021	5,093	6,284	$	17.25	5.93	$	605,986
Exercisable at June 30, 2021		4,823	$	9.93	5.23	$	499,683
Vested and expected to vest at June 30, 2021		6,194	$	16.90	5.90	$	599,432

Restricted Stock Units

The following table summarizes RSU activity for the six months ended June 30, 2021:

		Weighted-
		Average
		Grant Date
(in thousands, except for grant date fair value)	Shares	Fair Value
Balance at December 31, 2020	4,188	$	34.02
Granted	1,355	$	103.67
Vested	(1,387)	$	26.50
Cancelled/forfeited	(164)	$	41.33
Balance at June 30, 2021	3,992	$	59.73

Stock-Based Compensation Expense

Stock based compensation is related to stock options and RSUs granted to the Company’s employees and is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards on a straight-line basis. No compensation cost is recognized when the requisite service has not been met and the awards are therefore forfeited.

Employee stock-based compensation expense was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Non-employee stock-based compensation expense was not adjusted for estimated forfeitures up until the occurrence of the actual forfeiture of the associated awards.

The following tables present the effect of employee and non-employee stock-based compensation expense on selected statements of operations line items for the three and six months ended June 30, 2021 and 2020.

	Three months ended June 30,
	2021						2020
	Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	1,275	$	—	$	1,275	$	441	$	—	$	441
Research and development		6,276		340		6,616		2,631		282		2,913
Selling, general and administrative		27,146		66		27,212		8,527		76		8,603
Total	$	34,697	$	406	$	35,103	$	11,599	$	358	$	11,957

	Six months ended June 30,
	2021						2020
	Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	1,983	$	—	$	1,983	$	755	$	—	$	755
Research and development		9,926		564		10,490		4,313		442		4,755
Selling, general and administrative		45,751		111		45,862		13,779		85		13,864
Total	$	57,660	$	675	$	58,335	$	18,847	$	527	$	19,374

As of June 30, 2021, approximately $207.4 million of unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested option awards and RSUs will be recognized over a weighted-average period of approximately 2.8 years.

Valuation of Stock Option Grants to Employees and Non-employees

The Company utilizes the Black-Scholes option pricing model when estimating the fair value of stock options. For the three six months ended June 30, 2021, the following valuation assumptions were applied on both the employee and non-employee options. In the same period of the prior year, the valuation assumptions as follows were only used for stock options granted to employees.

	Three months ended June 30,								Six months ended June 30,
	2021					2020			2021					2020
Expected term (years)	5.11		—	10.00			10.00		5.11		—	10.00		5.27		—	10.00
Expected volatility	56.01	%	—	63.30	%		53.94	%	55.33	%	—	63.30	%	49.94	%	—	58.53	%
Expected dividend rate				0.00	%		0.00	%				0.00	%				0.00	%
Risk-free interest rate	0.81	%	—	1.67	%		0.71	%	0.81	%	—	1.67	%	0.44	%	—	1.70	%

As of June 30, 2021, total options outstanding include 32,053 shares of option awards that were granted to non-employees, of which 2,188 shares are unvested. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock option is earned and the services are rendered. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered.

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Debt

6 Months Ended

Jun. 30, 2021

Debt

Debt

10. Debt

Credit Line Agreement

In September 2015, the Company entered into a credit line with UBS (the “Credit Line”) providing for a $50.0 million revolving line of credit that can be drawn down in increments at any time. The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%. The Credit Line is secured by a first priority lien and security interest in the Company’s money market and marketable securities held in its managed investment account with UBS. UBS has the right to demand full or partial payment of the Credit Line Obligations and terminate the Credit Line, in its discretion and without cause, at any time.

For the three months ended June 30, 2021 and 2020, the Company recorded interest expense on the Credit Line of $0.2 million for both periods. For the six months ended June 30, 2021 and 2020, the Company recorded interest expense on the Credit Line of $0.3 million and $0.5 million, respectively. Interest payments on the Credit Line were made within the same periods. As of June 30, 2021, remaining accrued interest was $1.0 million, and the total principal amount outstanding with accrued interest was $49.0 million.

Convertible Notes

In April 2020, the Company issued $287.5 million aggregate principal amount of Convertible Notes due 2027 in a private placement offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms. Upon conversion, the Convertible Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.

The Company received net proceeds from the Convertible Notes of $278.3 million, after deducting the initial purchasers’ discounts and debt issuance costs. The Company used approximately $79.2 million of the net proceeds from the Convertible Notes offering to repay its obligations under the 2017 Term Loan with OrbiMed.

The holders of the Convertible Notes may convert all or a portion of their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2027 in multiples of $1,000 principal amount, under any the following circumstances:  

● During any fiscal quarter commencing after March 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day.

● During the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of that five-day consecutive trading period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day.

● If the Company calls any or all of the Convertible Notes for redemption at any time prior to the close of business on the second business day prior to the redemption date.

● Upon the occurrence of certain distributions.

● Upon the occurrence of specified corporate transactions.

The Convertible Notes are convertible into shares of the Company’s common stock, par value $0.0001 per share, at an initial conversion rate of 25.7785 shares of common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $38.79 per share of common stock, convertible to 7,411,704 shares of common stock. The conversion rate and corresponding conversion price are subject to adjustment

upon the occurrence of certain events but will not be adjusted for any accrued or unpaid interest. The holders of the Convertible Notes who redeem their Convertible Notes in connection with a make-whole fundamental change are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, the holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a price equal to 100% of the principal amount, plus any accrued and unpaid interest.

The Company may not redeem the Convertible Notes prior to May 2024, and no sinking fund is provided for the Convertible Notes. The Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, on or after May 2024, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest.

Upon adoption of ASU 2020-06, the Company allocated all of the debt discount to long-term debt. The debt discount is amortized to interest expense using the effective interest method, computed to be 2.72%, over the life of the Convertible Notes or approximately its seven-year term. The outstanding Convertible Notes balances as of June 30, 2021 are summarized in the following table:

	June 30,
	2021
	(in thousands)
Long-Term Debt
Outstanding Principal	$	287,500
Unamortized debt discount and issuance cost		(7,723)
Net carrying amount	$	279,777

The following table presents total interest expense recognized related to the Convertible Notes during the three and six months ended June 30, 2021:

	Three months ended		Six months ended
	June 30,		June 30,
	2021		2021
	(in thousands)
Cash interest expense
Contractual interest expense	$	1,617	$	3,234
Non-cash interest expense
Amortization of debt discount and debt issuance cost		306		610
Total interest expense	$	1,923	$	3,844

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Income Taxes

6 Months Ended

Jun. 30, 2021

Income Taxes

Income Taxes

11. Income Taxes

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense, immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of 2017, for qualified improvement property. As of June 30, 2021, the Company expects that these provisions will not have a material impact as the Company has no net operating losses or AMT credits that would fall under these provisions and does not expect interest expense to be deductible due to current and historical losses.

During the three months ended June 30, 2021, the Company recorded total income tax expense of approximately $242,000 and $15,000, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded total income tax expense of approximately $376,000 and $38,000, respectively. For the three and six months ended June 30,

2021, the income tax expense is primarily attributable to state income tax and foreign income tax expenses resulting from testing to clinics and licenses of cloud-based software and intellectual property that are based in a foreign country. There was no state income tax expense recorded for the three and six months ended June 30, 2020. Due to the Company’s history of cumulative operating losses, the Company concluded that, after considering all the available objective evidence, it is not more likely than not that all of the Company’s net deferred tax assets will be realized. Accordingly, all of the Company’s deferred tax assets, which includes net operating loss or NOL carryforwards and tax credits related primarily to research and development, continue to be subjected to a valuation allowance as of June 30, 2021. The Company will continue to maintain a full valuation allowance until there is sufficient evidence to support recoverability of its deferred tax assets.

As described in Note 10, Debt, the Company accounted for the issuance of the Convertible Notes by separating the Convertible Notes into separate liability and equity components. The portion of the proceeds allocated to equity created a basis difference at issuance and resulted in a deferred tax liability.  The debt issuance costs attributable to the equity component are deductible for tax and represent a deferred tax asset as of the issuance date.  However, since the Company has a full valuation allowance, both the deferred tax liability related to the equity component and the deferred tax asset related to the debt issuance costs had no impact to income tax expense in the three and six months ended June 30, 2021. 

The Company had $12.9 million and $11.5 million in unrecognized tax benefits as of June 30, 2021 and December 31, 2020, respectively. The reversal of the uncertain tax benefits would not affect the effective tax rate to the extent that the Company continues to maintain a full valuation allowance against its deferred tax assets. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

Interest and/or penalties related to income tax matters are recognized as a component of income tax expense. As of June 30, 2021, there were no accrued interest and penalties related to uncertain tax positions.

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Net Loss per Share

6 Months Ended

Jun. 30, 2021

Net Loss per Share

Net Loss per Share

12. Net Loss per Share

Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, excluding shares subject to repurchase and without consideration of potentially dilutive securities. Diluted net loss per share is computed by giving effect to all potentially dilutive common shares outstanding for the period. For purposes of this computation, outstanding common stock options, and restricted stock units are considered to be common share equivalents. Common share equivalents are excluded from the computation in periods in which they have an anti-dilutive effect, unless the consideration of any one of them gives a dilutive effect.

The Convertible Notes are convertible as of June 30, 2021. Upon conversion, the Company has the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion. If converted, the value of the Convertible Notes based on contractual settlement provisions would exceed its principal amount by $450.1 million as of June 30, 2021. Since the Company is in a net loss position in the periods presented, the shares which would be issued upon conversion of the Convertible Notes are excluded from the net loss per share calculation as it would have an antidilutive effect.  As such, the 7.4 million shares underlying the conversion option of the Convertible Notes will not have an impact on the Company’s diluted earnings per share. If converted, the Company does not intend to settle the obligation in cash.

The following table provides the basic and diluted net loss per share computations for the six months ended June 30, 2021 and 2020.

	Three months ended				Six months ended
	June 30,				June 30,
(in thousands, except per share data)	2021		2020		2021		2020
Numerator:
Net loss, basic and diluted	$	(116,026)	$	(59,637)	$	(179,879)	$	(95,009)
Denominator:
Weighted-average number of shares used in computing net loss per share, basic and diluted		88,077		79,069		87,387		78,681
Net loss per share, basic and diluted	$	(1.32)	$	(0.75)	$	(2.06)	$	(1.21)

The following table shows total outstanding potentially dilutive shares excluded from the computation of diluted loss per share as their effect would be anti-dilutive, as of June 30, 2021 and 2020:

	June 30,
	2021	2020
	(in thousands)
Options to purchase common stock	6,284	7,822
Restricted stock units	3,992	4,051
Employee stock purchase plan	31	51
Convertible Notes	7,411	7,411
Total	17,718	19,335

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Subsequent Events

6 Months Ended

Jun. 30, 2021

Subsequent Events

Subsequent Events

13. Subsequent Events

In July 2021, the Company completed an underwritten equity offering and sold 5,175,000 shares of its common stock at a price of $113 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $551.2 million net of the underwriting discount.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. The unaudited interim condensed consolidated financial information includes only adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the

results for the full year or the results for any future periods. The condensed consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements at that date, these financial statements should be read in conjunction with the audited financial statements, and related notes for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021. 

Liquidity Matters

Liquidity Matters

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. The Company had a net loss of $179.9 million for the six months ended June 30, 2021 and an accumulated deficit of $1.1 billion as of June 30, 2021. As of June 30, 2021, the Company had $63.0 million in cash, cash equivalents, and restricted cash, $517.4 million in marketable securities, $50.0 million of outstanding balance of the Credit Line (as defined in Note 10, Debt) including accrued interest, and $287.5 million outstanding principal balance of its 2.25% Convertible Senior Notes (the “Convertible Notes”). In April 2020, the Company used a portion of the net proceeds from the offering of the Convertible Notes to repay its obligations under its 2017 Term Loan with OrbiMed.

While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings.

The Company continues to develop and commercialize future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing. If the Company raises additional funds by issuing equity securities, its stockholders will experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and requires significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to the Company. If the Company is unable to obtain additional financing, it may be required to delay the development and commercialization of its products and significantly scale back its business and operations.

In May 2021, the Company entered into a development and option agreement with a third party that requires the third party to use its best efforts to perform an agreed upon development plan and provides the Company with an exclusive option to purchase the third party’s assets. The Company paid the third party $10 million in the second quarter of 2021 for conducting the development work and for entering into the agreement, and if the Company elects to exercise its option, the Company has agreed to pay the third party an additional $290 million for the designated assets. There is no assurance that the development plan will be successful, or that the Company will elect to exercise its option to purchase the third party’s assets or, if the Company exercises this option, that it will derive the anticipated benefit from the acquisition of these assets.

In April 2019, the Company completed an underwritten equity offering and sold 6,052,631 shares of its common stock at a price of $19 per share to the public. Before offering expenses of $0.6 million, the Company received proceeds of $108.1 million net of the underwriting discount. In October 2019, the Company completed another underwritten equity offering and sold 6,571,428 shares of its common stock at a price of $35 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $216.2 million net of the underwriting discount. In September 2020, the Company completed an additional underwritten equity offering and sold 4,791,665 shares of its common stock at a price of $60.00 per share to the public. Before offering expenses of $0.3 million, the Company received proceeds of $271.0 million net of the underwriting discount. In July 2021, the Company completed an underwritten equity offering and sold 5,175,000 shares of its common stock at a price of $113 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $551.2 million net of the underwriting discount. Based on the Company’s current business plan, the Company believes that its existing cash and marketable securities will be sufficient to meet its anticipated cash requirements for at least 12 months after August 5, 2021.

Principles of Consolidation

Principles of Consolidation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its subsidiaries. The Company established a subsidiary that operates in the state of Texas to support the Company’s laboratory and operational functions. All intercompany balances and transactions have been eliminated.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) in the United States requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts calculated based on the average selling price expected to be received from insurance payors, the operating right-of-use assets and the associated lease liabilities, deferred revenues associated with unsatisfied performance obligations, accrued liability for potential refund requests, the valuation of the Convertible Notes, stock-based compensation, the fair value of common stock, income tax uncertainties, and the expected consideration to be received from contracts with customers. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors, including contractual terms and statutory limits; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Credit Losses

Credit Losses

Trade accounts receivable and other receivables. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

The following is a roll-forward of the allowances for credit losses related to trade accounts receivable and other receivables for the six months ended June 30, 2021:

	Six Months Ended
	June 30,
	2021
		(in thousands)
Beginning balance	$	4,220
Provision for credit losses		63
Write-offs		(495)
Total	$	3,788

Available-for-sale debt securities. The amended guidance from ASU 2016-13 requires the measurement of expected credit losses for available-for-sale debt securities held at the reporting date over the remaining life based on historical experience, current conditions, and reasonable and supportable forecasts. The Company evaluated its investment portfolio under the available-for-sale debt securities impairment model guidance and determined the Company’s investment portfolio is composed of low-risk, investment grade securities.

Investments

Investments

Investments consist primarily of debt securities such as U.S. Treasuries, U.S. agency and municipal bonds. Management determines the appropriate classification of securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, irrespective of maturity date. Available-for-sale securities are carried at

fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity.

Risk and Uncertainties

Risk and Uncertainties

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, and the full extent and duration of the impact of the COVID-19 pandemic on its business, its operations, and the global economy as a whole is not yet known. While the Company’s test volumes and overall average selling prices for its tests increased during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, the Company cannot predict the potential nature, magnitude and duration of the effects of the COVID-19 pandemic on the macroeconomic environment or its business.

Financial instruments that potentially subject the Company to credit risk consist of cash, accounts receivable and investments. The Company limits its exposure to credit loss by placing its cash in financial institutions with high credit ratings. The Company's cash may consist of deposits held with banks that may at times exceed federally insured limits. The Company performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

The Company performs evaluations of financial conditions for insurance carriers, patients, clinics and laboratory partners and generally does not require collateral to support credit sales. For the six months ended June 30, 2021, and 2020, there were no customers exceeding 10% of total revenues on an individual basis. As of June 30, 2021 and December 31, 2020, there were no customers with an outstanding balance exceeding 10% of net accounts receivable. 

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)

Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities.

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Beginning balance	$	3,197	$	5,666	$	4,259	$	919
Net unrealized gain (loss) on available-for-sale securities, net of tax		(756)		104		(1,818)		4,851
Ending balance	$	2,441	$	5,770	$	2,441	$	5,770

Recent Accounting Pronouncements

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) under its accounting standard codifications or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of accounting standards updates recently issued that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

Recently Adopted Accounting Pronouncements

Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 proposes new disclosure requirements for unrealized gains or losses recognized in other comprehensive income that are attributable to fair value

changes in assets and liabilities categorized within Level III of the fair value hierarchy, as well as quantitative information about significant unobservable inputs used to value such assets and liabilities. It eliminates the requirement to disclose the reasons for the transfers of assets and liabilities measured in fair value on a recurring basis between Level I and Level II. The Company has adopted this ASU as of January 1, 2020, which did not have a material impact on its consolidated financial statements.

Goodwill - Internal-Use Software

In August 2018, the FASB issued ASU 2018‑15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The Company adopted ASU 2018-15 as of January 1, 2020 using the prospective approach, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05. The standard requires measurement and recognition of expected credit losses for financial assets by requiring an allowance to be recorded as an offset to the amortized cost of such assets. For available-for-sale debt securities, expected credit losses should be estimated when the fair value of the debt securities is below their associated amortized costs. The Company adopted ASU 2016-13, as amended, effective January 1, 2020 using the modified retrospective method and recorded a cumulative-effect adjustment of $0.4 million in retained earnings as of January 1, 2020.

Collaborative Arrangements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company has adopted this standard as of January 1, 2020, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company has adopted this standard as of September 30, 2020, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

In October 2020, ASU 2020-10, Codification Improvements, was issued, which simplifies the existing codification. The guidance includes presentation disclosures for the amount of income tax expense or benefit related to other comprehensive income. ASU 2010-10 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early application of the amendments is permitted for public business entities for any annual or interim period for which financial statements have not been issued. The Company has adopted this standard

as of January 1, 2021, which did not have a material impact on its condensed consolidated financial statements upon the adoption.

Debt

In August 2020, ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) was issued which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company has adopted this standard as of January 1, 2021 using the modified retrospective approach. As a result of the adoption of ASU 2020-06, the Convertible Notes due May 2027 are no longer bifurcated into separate liability and equity components in the March 31, 2021 condensed consolidated balance sheet. Rather, the $287.5 million principal amount of the Company’s Convertible Notes was classified only as a liability in the March 31, 2021 condensed consolidated balance sheet. Upon adoption of ASU 2020-06, an adjustment was recorded to the Convertible Notes liability component, equity component (additional paid-in-capital) and retained earnings. The cumulative effect of the change was recognized as an adjustment to the opening balance of retained earnings at the date of adoption. The comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods. This adjustment was calculated based on the carrying amount of the Convertible Notes as if it had always been treated only as a liability. Further, an adjustment was recorded to the debt discount and issuance costs as if these had always been treated as a contra liability only. Interest expense related to the accretion of the Convertible Notes is no longer recognized.  Interest expense for the Convertible Notes for the three and six months ended June 30, 2021 would have been $2.3 million and $4.6 million higher without the adoption of ASU 2020-06, respectively. As such, net loss from continuing operations attributable to the Company per common share for the three and six months ended June 30, 2021 is $0.02 and $0.05 lower due to the effect of adoption of ASU 2020-06, respectively.

	December 31,		ASU 2020-06		January 1,
	2020		Adoption Adjustment		2021
	(in thousands)
Liabilities
Outstanding Principal	$	287,500	$	—	$	287,500
Unamortized debt discount and issuance cost		(85,007)		76,674		(8,333)
Net carrying amount	$	202,493	$	76,674	$	279,167
Equity
Additional paid-in-capital	$	(1,411,286)	$	82,872	$	(1,328,414)
Accumulated deficit		(929,318)		6,198		(923,120)

New Accounting Pronouncements Not Yet Adopted

In March 2020, ASU 2020-04, Reference Rate Reform (Topic 848) was issued which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationship, and sale or transfer of debt securities classified as held-to-maturity. Early adoption of this ASU is permitted, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company’s financial instruments that are in the scope of ASU 2020-04 include but are not limited to the UBS credit line agreement. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2021

Summary Of Significant Accounting Policies [Line Items]

Schedule of allowances for credit losses

	Six Months Ended
	June 30,
	2021
		(in thousands)
Beginning balance	$	4,220
Provision for credit losses		63
Write-offs		(495)
Total	$	3,788

Schedule of Accumulated Other Comprehensive Income (Loss)

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Beginning balance	$	3,197	$	5,666	$	4,259	$	919
Net unrealized gain (loss) on available-for-sale securities, net of tax		(756)		104		(1,818)		4,851
Ending balance	$	2,441	$	5,770	$	2,441	$	5,770

Accounting Standards Update 2020-06

Summary Of Significant Accounting Policies [Line Items]

Schedule of new accounting pronouncements and changes in accounting principle

	December 31,		ASU 2020-06		January 1,
	2020		Adoption Adjustment		2021
	(in thousands)
Liabilities
Outstanding Principal	$	287,500	$	—	$	287,500
Unamortized debt discount and issuance cost		(85,007)		76,674		(8,333)
Net carrying amount	$	202,493	$	76,674	$	279,167
Equity
Additional paid-in-capital	$	(1,411,286)	$	82,872	$	(1,328,414)
Accumulated deficit		(929,318)		6,198		(923,120)

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Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2021

Revenue Recognition

Schedule of disaggregation of revenues by payer types

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
(in thousands)
Insurance carriers	$	118,396	$	67,630	$	218,795	$	138,302
Laboratory and other partners		15,599		13,041		60,134		28,724
Patients		8,031		5,801		15,413		13,458
Total revenues	$	142,026	$	86,472	$	294,342	$	180,484

Schedule of total revenue by geographic area

	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
(in thousands)
United States	$	134,814	$	80,757	$	279,771	$	167,488
Americas, excluding U.S.		992		721		1,805		1,503
Europe, Middle East, India, Africa		4,265		3,584		8,724		7,060
Asia Pacific and Other		1,955		1,410		4,042		4,433
Total revenues	$	142,026	$	86,472	$	294,342	$	180,484

Schedule of beginning and ending balances of accounts receivable and deferred revenues

	Balance at		Balance at
	June 30,		December 31,
(in thousands)	2021		2020
Assets:
Accounts receivable	$	100,130	$	78,565
Liabilities:
Deferred revenue, current portion	$	10,647	$	50,125
Deferred revenue, long-term portion		23,562		22,805
Total deferred revenues	$	34,209	$	72,930

Schedule of changes in the balance of deferred revenues

	Deferred
	Revenues
	(in thousands)
Balance at December 31, 2020	$	72,930
Increase in deferred revenues		3,474
Refunds of revenues previously deferred		(10,000)
Revenue recognized during the period that was included in deferred revenues at the beginning of the period		(30,839)
Revenue recognized from performance obligations satisfied within the same period		(1,356)
Balance at June 30, 2021	$	34,209

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2021

Fair Value Measurements

Summary of financial assets and liabilities measured on recurring basis

	June 30, 2021								December 31, 2020
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Money market deposits	$	5,509	$	—	$	—	$	5,509	$	28,990	$	—	$	—	$	28,990
U.S. Treasury securities		434,639		—		—		434,639		597,744		—		—		597,744
Corporate bonds and notes		—		14,248		—		14,248		—		12,328		—		12,328
Municipal securities		—		68,545		—		68,545		—		78,534		—		78,534
Total financial assets	$	440,148	$	82,793	$	—	$	522,941	$	626,734	$	90,862	$	—	$	717,596

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Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2021

Financial Instruments

Schedule of available-for-sale securities

	June 30, 2021								December 31, 2020
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
	(in thousands)
Money market deposits	$	5,509	$	—	$	—	$	5,509	$	28,990	$	—	$	—	$	28,990
U.S. Treasury securities (1)		432,610		2,180		(151)		434,639		594,252		3,512		(20)		597,744
Corporate bonds and notes (1)		14,284		2		(38)		14,248		12,331		2		(5)		12,328
Municipal securities		68,097		505		(57)		68,545		77,764		796		(26)		78,534
Total	$	520,500	$	2,687	$	(246)	$	522,941	$	713,337	$	4,310	$	(51)	$	717,596
Classified as:
Cash equivalents (2)							$	5,509							$	28,990
Short-term investments								517,432								688,606
Total							$	522,941							$	717,596

Summarized portfolio of available-for-sale securities by contractual maturity

	June 30, 2021
	Amortized Cost		Fair Value
	(in thousands)
Less than or equal to one year	$	213,114	$	213,493
Greater than one year but less than five years		301,877		303,939
Total	$	514,991	$	517,432

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Balance Sheet Components (Tables)

6 Months Ended

Jun. 30, 2021

Balance Sheet Components

Schedule of property and equipment

		June 30,		December 31,
	Useful Life	2021		2020
		(in thousands)
Machinery and equipment	3-5 years	$	58,432	$	51,001
Furniture and fixtures	3 years		1,376		1,376
Computer equipment	3 years		2,772		2,428
Capitalized software held for internal use	3 years		7,582		7,417
Leasehold improvements	Lesser of useful life or lease term		14,952		14,810
Construction-in-process			19,087		6,370
			104,201		83,402
Less: Accumulated depreciation and amortization			(55,317)		(50,054)
Total Property and Equipment, net		$	48,884	$	33,348

Schedule of accrued compensation

	June 30,		December 31,
	2021		2020
	(in thousands)
Accrued paid time off	$	2,439	$	2,260
Accrued commissions		14,104		12,686
Accrued bonuses		7,984		9,635
Other accrued compensation		6,315		5,790
Total accrued compensation	$	30,842	$	30,371

Schedule of other accrued liabilities

	June 30,		December 31,
	2021		2020
	(in thousands)
Reserves for refunds to insurance carriers		22,301	$	17,366
Accrued charges for third-party testing		10,422		5,141
Testing and laboratory materials from suppliers		7,805		2,720
Marketing and corporate affairs		5,374		3,325
Legal, audit and consulting fees		4,364		4,189
Accrued shipping charges		1,276		1,604
Sales tax payable		1,501		1,723
Accrued third-party service fees		2,482		2,355
Clinical trials and studies		2,419		2,353
Operating lease liabilities, current portion		6,330		7,300
Fixed asset purchases		1,740		1,691
Other accrued interest		1,078		1,078
Deposits held for sublease		10		—
Other accrued expenses		19,041		9,562
Total other accrued liabilities	$	86,143	$	60,407

Summary of reserve balance and activities for refunds to insurance carriers

	June 30,		June 30,
	2021		2020
	(in thousands)
Beginning balance	$	17,366		9,410
Additional reserves		10,960		8,563
Refunds to carriers		(3,054)		(3,251)
Reserves released to revenue		(2,971)		(1,622)
Ending balance	$	22,301	$	13,100

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Leases (Tables)

6 Months Ended

Jun. 30, 2021

Leases

Schedule of lease liabilities

	June 30,
	2021
		(in thousands)
Operating lease liabilities, current portion included in other accrued liabilities	$	6,330
Operating lease liabilities, long-term portion		49,519
Total operating lease liabilities	$	55,849

Schedule of annual minimum lease payments

	Operating Leases
	(in thousands)
Year ending December 31:
2021 (remaining 6 months)	$	5,086
2022		10,404
2023		11,071
2024		11,889
2025		12,186
2026 and thereafter		20,064
		70,700
Less: imputed interest		(14,851)
Operating lease liabilities	$	55,849

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies

Schedule of material contractual commitments

Party	Commitments		Expiry Date
		(in thousands)
Material supplier	$	14,207	June 2026
Application service providers		31,853	March 2026
Other material suppliers		16,662	Various
Total	$	62,722

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2021

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of performance-based awards

Period Granted	Options Granted	RSUs Granted	Options Vested	RSUs Vested	Milestone	Valuation Method
(in thousands)
Q1 2019	200	300	169	260	(1)	Monte-Carlo Simulation
Q2 2019	—	188	—	81	(2)	Fair Market Value
Q3 2019	—	50	—	38	(1)	Monte-Carlo Simulation
Q1 2020	150	300	94	216	(1)	Monte-Carlo Simulation
Q1 2020	—	436	—	404	(3)	Fair Market Value
Q1 2020	129	—	129	—	(3)	Black-Scholes-Merton
Q2 2020	—	21	—	21	(3)	Fair Market Value
Q3 2020	10	—	10	—	(4)	Black-Scholes-Merton
Q3 2020	—	27	—	13	(3)	Fair Market Value
Q4 2020	—	32	—	6	(1)	Monte-Carlo Simulation
Q4 2020	—	22	—	2	(5)	Fair Market Value
Q1 2021	150	125	—	—	(1)	Monte-Carlo Simulation
Q1 2021	—	279	—	10	(3)	Fair Market Value
Q2 2021	163	—	—	—	(1)	Monte-Carlo Simulation
Q2 2021	29	—	—	—	(3)	Black-Scholes-Merton
Q2 2021	—	7	—	—	(3)	Fair Market Value

________________________________

(1) The awards will vest based on the achievement of certain values of the Company’s common stock at multiple thresholds within certain periods and are contingent upon the completion of requisite service through the date of such vesting.

(2) The vesting of the awards will be triggered after the end of the achievement milestone, as measured by the Company.

(3) The awards will vest based on achievement of a revenue target and are contingent upon the completion of requisite service through the date of such vesting.

(4) The awards vest based on achievement of a reimbursement target.

​
(5) The awards will vest based on achievement of certain revenue and recruiting targets.

Summary of stock option activity

	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
(in thousands, except for contractual life and exercise price)	Grant	Shares	Price		Life	Value
					(in years)
Balance at December 31, 2020	3,197	6,707	$	11.19	6.04	$	592,468
Additional shares authorized	3,446	—
Options granted	(390)	390	$	104.01
Options exercised	—	(782)	$	8.73
Options forfeited/cancelled	31	(31)	$	13.80
RSUs granted	(1,355)	—
RSUs forfeited/cancelled	164	—
Balance at June 30, 2021	5,093	6,284	$	17.25	5.93	$	605,986
Exercisable at June 30, 2021		4,823	$	9.93	5.23	$	499,683
Vested and expected to vest at June 30, 2021		6,194	$	16.90	5.90	$	599,432

Restricted stock units

		Weighted-
		Average
		Grant Date
(in thousands, except for grant date fair value)	Shares	Fair Value
Balance at December 31, 2020	4,188	$	34.02
Granted	1,355	$	103.67
Vested	(1,387)	$	26.50
Cancelled/forfeited	(164)	$	41.33
Balance at June 30, 2021	3,992	$	59.73

Summary of stock-based compensation expenses

	Three months ended June 30,
	2021						2020
	Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	1,275	$	—	$	1,275	$	441	$	—	$	441
Research and development		6,276		340		6,616		2,631		282		2,913
Selling, general and administrative		27,146		66		27,212		8,527		76		8,603
Total	$	34,697	$	406	$	35,103	$	11,599	$	358	$	11,957

	Six months ended June 30,
	2021						2020
	Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	1,983	$	—	$	1,983	$	755	$	—	$	755
Research and development		9,926		564		10,490		4,313		442		4,755
Selling, general and administrative		45,751		111		45,862		13,779		85		13,864
Total	$	57,660	$	675	$	58,335	$	18,847	$	527	$	19,374

Performance-based awards

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of assumptions used in valuation of fair value

	June 30,
	2021
Risk-free interest rate		0.80	%	—	1.42	%
Expected dividend yield					0.00	%
Expected volatility					60	%
Expected term (years)		7.25		—	10.00

Employee stock options

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of assumptions used in valuation of fair value

	Three months ended June 30,								Six months ended June 30,
	2021					2020			2021					2020
Expected term (years)	5.11		—	10.00			10.00		5.11		—	10.00		5.27		—	10.00
Expected volatility	56.01	%	—	63.30	%		53.94	%	55.33	%	—	63.30	%	49.94	%	—	58.53	%
Expected dividend rate				0.00	%		0.00	%				0.00	%				0.00	%
Risk-free interest rate	0.81	%	—	1.67	%		0.71	%	0.81	%	—	1.67	%	0.44	%	—	1.70	%

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Debt (Tables)

6 Months Ended

Jun. 30, 2021

Debt

Schedule of outstanding Convertible Notes

	June 30,
	2021
	(in thousands)
Long-Term Debt
Outstanding Principal	$	287,500
Unamortized debt discount and issuance cost		(7,723)
Net carrying amount	$	279,777

Summary of interest expense

	Three months ended		Six months ended
	June 30,		June 30,
	2021		2021
	(in thousands)
Cash interest expense
Contractual interest expense	$	1,617	$	3,234
Non-cash interest expense
Amortization of debt discount and debt issuance cost		306		610
Total interest expense	$	1,923	$	3,844

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Net Loss per Share (Tables)

6 Months Ended

Jun. 30, 2021

Net Loss per Share

Basic and diluted net loss per share

	Three months ended				Six months ended
	June 30,				June 30,
(in thousands, except per share data)	2021		2020		2021		2020
Numerator:
Net loss, basic and diluted	$	(116,026)	$	(59,637)	$	(179,879)	$	(95,009)
Denominator:
Weighted-average number of shares used in computing net loss per share, basic and diluted		88,077		79,069		87,387		78,681
Net loss per share, basic and diluted	$	(1.32)	$	(0.75)	$	(2.06)	$	(1.21)

Total outstanding potentially dilutive shares

	June 30,
	2021	2020
	(in thousands)
Options to purchase common stock	6,284	7,822
Restricted stock units	3,992	4,051
Employee stock purchase plan	31	51
Convertible Notes	7,411	7,411
Total	17,718	19,335

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Summary of Significant Accounting Policies - Liquidity Matters (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended						3 Months Ended		6 Months Ended
	Jul. 31, 2021	May 31, 2021	Sep. 30, 2020	Apr. 30, 2020	Oct. 31, 2019	Apr. 30, 2019	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020	Dec. 31, 2019
Policies
Net (loss) income							$ (116,026)	$ (59,637)	$ (179,879)	$ (95,009)
Accumulated deficit							1,102,999		1,102,999		$ 929,318
Cash, cash equivalents and restricted cash							63,039	77,377	63,039	77,377	48,855	$ 61,981
Marketable securities							517,432		517,432		688,606
Short-term Credit Line, outstanding balance							$ 50,049		$ 50,049		$ 50,054
Contractual commitment for development and option agreement		$ 10,000
Payment for third party assets if purchase option is exercised		$ 290,000
Common stock, shares issued							88,498,000		88,498,000		86,223,000
Net proceeds										278,317
Loss on Debt Extinguishment								$ 5,848		$ 5,848
Convertible Notes
Policies
Outstanding principal balance				$ 287,500			$ 287,500		$ 287,500
Per annum interest rate (as a percent)				2.25%					2.25%
Net proceeds				$ 278,300
Equity offering
Policies
Common stock, shares issued			4,791,665		6,571,428	6,052,631
Stock issued (in dollars per share)			$ 60.00		$ 35	$ 19
Payment of offering expenses			$ 300		$ 400	$ 600
Proceeds from issuance of common stock			$ 271,000		$ 216,200	$ 108,100
Equity offering | Subsequent Event
Policies
Common stock, shares issued	5,175,000
Stock issued (in dollars per share)	$ 113
Payment of offering expenses	$ 400
Proceeds from issuance of common stock	$ 551,200

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Summary of Significant Accounting Policies - Credit Losses (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2021 USD ($)
Summary of Significant Accounting Policies
Beginning balance	$ 4,220
Provision for credit losses	63
Write-offs	(495)
Ending balance	$ 3,788

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Summary of Significant Accounting Policies - Concentration (Details)	6 Months Ended		12 Months Ended
	Jun. 30, 2021 USD ($) customer	Jun. 30, 2020 USD ($)	Dec. 31, 2020 customer
Sales | Customer
Risk and Uncertainties
Number of customers exceeding 10% of benchmark | $	0	0
Accounts receivable | Credit
Risk and Uncertainties
Number of customers exceeding 10% of benchmark | customer	0		0

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Summary of Significant Accounting Policies - AOCIL (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ 3,197	$ 5,666	$ 4,259	$ 919
Ending balance	2,441	5,770	2,441	5,770
Net unrealized gain (loss) on available-for-sale securities, net of tax
Accumulated Other Comprehensive Income (Loss) [Line Items]
Increase (decrease) in other comprehensive loss	$ (756)	$ 104	$ (1,818)	$ 4,851

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Summary of Significant Accounting Policies - Accounting Pronouncements (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Accumulated deficit	$ (1,102,999)	$ (1,102,999)		$ (929,318)
Convertible Notes
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Interest expense	1,923	3,844
Outstanding principle	287,500	287,500	$ 287,500
Net carrying amount	279,777	279,777
Previously reported
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Interest expense	$ 2,300	$ 4,600
Previously reported | Convertible Notes
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Outstanding principle				287,500
Unamortized debt discount and issuance cost				(85,007)
Net carrying amount				202,493
Additional paid-in-capital				(1,411,286)
Accumulated deficit				(929,318)
ASU 2016-13
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative effect adjustment					$ 400
Accounting Standards Update 2020-06 | Convertible Notes
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Outstanding principle				287,500
Unamortized debt discount and issuance cost				(8,333)
Net carrying amount				279,167
Additional paid-in-capital				(1,328,414)
Accumulated deficit				(923,120)
Accounting Standards Update 2020-06 | Adoption Adjustment
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Reduction in net loss from continuing operations per share	$ 0.02	$ 0.05
Accounting Standards Update 2020-06 | Adoption Adjustment | Convertible Notes
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Unamortized debt discount and issuance cost				76,674
Net carrying amount				76,674
Additional paid-in-capital				82,872
Accumulated deficit				$ 6,198

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Revenue Recognition (Details) - USD ($) $ in Thousands	1 Months Ended		3 Months Ended				6 Months Ended		12 Months Ended
	Jul. 31, 2021	Feb. 28, 2019	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2020	Sep. 30, 2019	Aug. 31, 2019
Refunds of revenues previously deferred							$ 10,000
Deferred revenue, Long-term			$ 23,562				23,562				$ 22,805
Other assets			12,847				12,847				14,743
Deferred revenue			34,209				34,209				72,930
Deferred revenue, current portion			10,647				10,647				50,125
Total revenues			142,026		$ 86,472		294,342	$ 180,484
Deferred revenue, long-term portion			23,562				23,562				22,805
Revenue recognized during the period that was included in deferred revenues at the beginning of the period							30,839
Product
Revenue recognized			1,700		600		3,000	1,600
Cost of revenues			73,227		42,731		134,549	84,251
Total revenues			137,232		80,414		$ 255,614	167,460
Product | Minimum
Billing collection period (in months)							9 months
Product | Maximum
Billing collection period (in months)							12 months
Licensing and other
Cost of revenues			2,885		4,208		$ 8,376	7,666
Total revenues			4,794		$ 6,058		38,728	$ 13,024
Genetic testing services
Revenue recognized during the period that was included in deferred revenues at the beginning of the period							$ 200
Qiagen
Proceeds from license agreement										$ 5,000
Agreement term							10 years
Revenue, remaining performance obligation										40,000
Revenue recognized during the period that was included in deferred revenues at the beginning of the period							$ 28,600
Qiagen | Volume, regulatory and commercial milestones
Revenue, remaining performance obligation										$ 10,000
Qiagen | Other licensing and other revenue
Refunds of revenues previously deferred				$ 10,000
Deferred revenue				$ 28,600
Laboratory distribution partners | Product | Minimum
Billing collection period (in months)							2 months
Laboratory distribution partners | Product | Maximum
Billing collection period (in months)							3 months
BGI Genomics
Proceeds from license agreement		$ 50,000				$ 35,600
Receivable						$ 2,500
Agreement term		10 years
Deferred revenue, current portion			3,200				$ 3,200
BGI Genomics | Sequencing services
Other assets												$ 6,000
BGI Genomics | Sequencing products
Other assets												4,000
BGI Genomics | Sequencing products and services
Other assets												$ 10,000
Foundation Medicine ("FMI")
Proceeds from license agreement									$ 16,300
Deferred revenue, current portion			5,100				5,100
Prepaid royalties											$ 2,500
Foundation Medicine ("FMI") | Milestone payments
Deferred revenue, current portion			1,000				1,000
Foundation Medicine ("FMI") | Milestone payments | Subsequent Event
Proceeds from license agreement	$ 1,000
Foundation Medicine ("FMI") | Upfront licensing fees and prepaid revenues
Initial transaction price													$ 13,300
Foundation Medicine ("FMI") | Developmental, regulatory, and commercial milestones
Initial transaction price													$ 32,000
Foundation Medicine ("FMI") | Developmental performance milestones
Proceeds from license agreement									3,000
Foundation Medicine ("FMI") | Licensing fees and prepaid revenue
Proceeds from license agreement									$ 13,300
Foundation Medicine ("FMI") | Clinical trial studies
Revenue recognized			$ 0
BGI and FMI | Genetic testing services
Revenue recognized during the period that was included in deferred revenues at the beginning of the period							$ 2,000

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Revenue Recognition - Disaggregation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Disaggregation of Revenue [Line Items]
Total revenues	$ 142,026	$ 86,472	$ 294,342	$ 180,484
United States
Disaggregation of Revenue [Line Items]
Total revenues	134,814	80,757	279,771	167,488
Americas, excluding U.S.
Disaggregation of Revenue [Line Items]
Total revenues	992	721	1,805	1,503
Europe, Middle East, India, Africa
Disaggregation of Revenue [Line Items]
Total revenues	4,265	3,584	8,724	7,060
Asia Pacific and Other
Disaggregation of Revenue [Line Items]
Total revenues	1,955	1,410	4,042	4,433
Insurance carriers
Disaggregation of Revenue [Line Items]
Total revenues	118,396	67,630	218,795	138,302
Laboratory partners
Disaggregation of Revenue [Line Items]
Total revenues	15,599	13,041	60,134	28,724
Patients
Disaggregation of Revenue [Line Items]
Total revenues	8,031	5,801	15,413	13,458
Licensing and other
Disaggregation of Revenue [Line Items]
Total revenues	$ 4,794	$ 6,058	$ 38,728	$ 13,024

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Revenue Recognition - Accounts Receivable and Deferred Revenue (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Assets
Accounts receivable	$ 100,130	$ 78,565
Liabilities:
Deferred revenue, current portion	10,647	50,125
Deferred revenue, long-term portion	23,562	22,805
Total deferred revenues	$ 34,209	$ 72,930

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Revenue Recognition - Changes in Balance of Deferred Revenues (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2021 USD ($)
Revenue Recognition
Balance	$ 72,930
Increase in deferred revenues	3,474
Refunds of revenues previously deferred	(10,000)
Revenue recognized during the period that was included in deferred revenues at the beginning of the period	(30,839)
Revenue recognized from performance obligations satisfied within the same period	(1,356)
Balance	$ 34,209

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Revenue Recognition - Deferred Revenues (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Revenue recognized during the period that was included in deferred revenues at the beginning of the period	$ 30,839
Deferred revenue, current portion	10,647	$ 50,125
Deferred revenue, Long-term	23,562	22,805
Deferred revenue	34,209	$ 72,930
BGI Genomics
Deferred revenue, current portion	3,200
Foundation Medicine ("FMI")
Deferred revenue, current portion	5,100
Qiagen
Revenue recognized during the period that was included in deferred revenues at the beginning of the period	$ 28,600

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Fair Value Measurements (Details) - Recurring - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Financial Assets:
Total financial assets	$ 522,941	$ 717,596
Money market deposits
Financial Assets:
Total financial assets	5,509	28,990
U.S. Treasury securities
Financial Assets:
Total financial assets	434,639	597,744
Corporate bonds and notes
Financial Assets:
Total financial assets	14,248	12,328
Municipal securities
Financial Assets:
Total financial assets	68,545	78,534
Level 1
Financial Assets:
Total financial assets	440,148	626,734
Level 1 | Money market deposits
Financial Assets:
Total financial assets	5,509	28,990
Level 1 | U.S. Treasury securities
Financial Assets:
Total financial assets	434,639	597,744
Level 2
Financial Assets:
Total financial assets	82,793	90,862
Level 2 | Convertible Notes
Liabilities:
Fair value of financial liabilities	871,000
Level 2 | Corporate bonds and notes
Financial Assets:
Total financial assets	14,248	12,328
Level 2 | Municipal securities
Financial Assets:
Total financial assets	$ 68,545	$ 78,534

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Financial Instruments (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2021 USD ($) position	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Estimated Fair Value	$ 517,432		$ 688,606
Proceeds from investments sold	31,100	$ 11,500
Other than temporary impairment	$ 0
Number of investments, unrealized loss position | position	23
Amortized Cost
Less than or equal to one year	$ 213,114
Greater than one year but less than five years	301,877
Total	514,991
Fair Value
Less than or equal to one year	213,493
Greater than or equal to one year but less than five years	303,939
Total	517,432
Available-for-sale securities
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	520,500		713,337
Unrealized Gain	2,687		4,310
Unrealized Loss	(246)		(51)
Estimated Fair Value	522,941		717,596
Unrealized loss position	158,800
Money market deposits
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	5,509		28,990
Estimated Fair Value	5,509		28,990
U.S. Treasury securities
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	432,610		594,252
Unrealized Gain	2,180		3,512
Unrealized Loss	(151)		(20)
Estimated Fair Value	434,639		597,744
Corporate bonds and notes
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	14,284		12,331
Unrealized Gain	2		2
Unrealized Loss	(38)		(5)
Estimated Fair Value	14,248		12,328
Municipal securities
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	68,097		77,764
Unrealized Gain	505		796
Unrealized Loss	(57)		(26)
Estimated Fair Value	68,545		78,534
Cash equivalents | Available-for-sale securities
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Estimated Fair Value	5,509		28,990
Short-term investments | Available-for-sale securities
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Estimated Fair Value	$ 517,432		$ 688,606

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Balance Sheet Components - Property and Equipment, net (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Property and Equipment, net
Property and equipment, gross	$ 104,201	$ 83,402
Less: Accumulated depreciation and amortization	(55,317)	(50,054)
Total Property and Equipment, net	48,884	33,348
Depreciation expense	5,300
Impairment	0
Machinery and equipment
Property and Equipment, net
Property and equipment, gross	58,432	51,001
Furniture and fixtures
Property and Equipment, net
Property and equipment, gross	$ 1,376	1,376
Useful Life	3 years
Computer equipment
Property and Equipment, net
Property and equipment, gross	$ 2,772	2,428
Useful Life	3 years
Capitalized software held for internal use
Property and Equipment, net
Property and equipment, gross	$ 7,582	7,417
Useful Life	3 years
Leasehold improvements
Property and Equipment, net
Property and equipment, gross	$ 14,952	14,810
Construction-in-process
Property and Equipment, net
Property and equipment, gross	$ 19,087	$ 6,370
Minimum | Machinery and equipment
Property and Equipment, net
Useful Life	3 years
Maximum | Machinery and equipment
Property and Equipment, net
Useful Life	5 years

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Balance Sheet Components - Accrued Compensation (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Balance Sheet Components
Accrued paid time off	$ 2,439	$ 2,260
Accrued commissions	14,104	12,686
Accrued bonuses	7,984	9,635
Other accrued compensation	6,315	5,790
Total accrued compensation	$ 30,842	$ 30,371

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Balance Sheet Components - Other Accrued Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020	Dec. 31, 2019
Balance Sheet Components
Reserves for refunds to insurance carriers	$ 22,301	$ 17,366	$ 13,100	$ 9,410
Accrued charges for third-party testing	10,422	5,141
Testing and laboratory materials from suppliers	7,805	2,720
Marketing and corporate affairs	5,374	3,325
Legal, audit and consulting fees	4,364	4,189
Accrued shipping charges	1,276	1,604
Sales tax payable	1,501	1,723
Accrued third-party service fees	2,482	2,355
Clinical trials and studies	2,419	2,353
Operating lease liabilities, current portion	6,330	7,300
Fixed asset purchases	1,740	1,691
Other accrued interest	1,078	1,078
Deposits held for sublease	10
Other accrued expenses	19,041	9,562
Total other accrued liabilities	$ 86,143	$ 60,407

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Balance Sheet Components - Reserve Balance and Activities for Refunds (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Balance Sheet Components
Beginning balance	$ 17,366	$ 9,410
Additional reserves	10,960	8,563
Refunds to carriers	(3,054)	(3,251)
Reserves released to revenue	(2,971)	(1,622)
Ending balance	$ 22,301	$ 13,100

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Leases (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021 USD ($) ft²	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($) ft² item	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Lessee, Lease, Description [Line Items]
Operating lease liabilities, current portion included in other accrued liabilities	$ 6,330		$ 6,330		$ 7,300
Operating lease liabilities, long-term portion	49,519		49,519		$ 21,246
Operating lease liabilities	$ 55,849		55,849
Noncash investing activities related to right-of-use assets			$ 30,100
Weighted average discount rate (as a percent)	7.49%		7.49%
Lease expense	$ 2,700	$ 1,900	$ 5,400	$ 3,900
Operating lease payments	$ 2,500	$ 2,200	$ 5,000	$ 4,400
Corporate Headquarters Lease
Lessee, Lease, Description [Line Items]
Office space (area) | ft²	113,000		113,000
Number of office space locations | item			2
Term of lease	84 months		84 months
Renewal term of lease	5 years		5 years
"First Space" Sublease
Lessee, Lease, Description [Line Items]
Number of office space locations | ft²			88,000
"Second Space" Sublease
Lessee, Lease, Description [Line Items]
Number of office space locations | ft²			25,000
Corporate Headquarters Lease Amendment
Lessee, Lease, Description [Line Items]
Annual lease payment			$ 9,300
Term of lease	48 months		48 months
Austin TX, Long-term Lease
Lessee, Lease, Description [Line Items]
Office space (area) | ft²	94,000		94,000
Term of lease	132 months		132 months
Tukwila, WA Lease
Lessee, Lease, Description [Line Items]
Office space (area) | ft²	10,000		10,000
Term of lease	62 months		62 months
Renewal term of lease	5 years		5 years
San Carlos, CA Sublease
Lessee, Lease, Description [Line Items]
Office space (area) | ft²	25,879		25,879
Term of lease	48 months		48 months
Sublease receivable	$ 1,900		$ 1,900
San Carlos, CA Sublease Amendment
Lessee, Lease, Description [Line Items]
Noncash investing activities related to right-of-use assets			$ 29,700
San Carlos, CA Sublease Amendment | Rentable square feet surrendered in lease amendment
Lessee, Lease, Description [Line Items]
Office space (area) | ft²	25,879		25,879
South San Francisco, CA Lease
Lessee, Lease, Description [Line Items]
Office space (area) | ft²	11,395		11,395
Annual lease payment			$ 900
Term of lease	36 months		36 months

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Leases - Payments (Details) $ in Thousands	Jun. 30, 2021 USD ($)
Leases
2021 (remaining 6 months)	$ 5,086
2022	10,404
2023	11,071
2024	11,889
2025	12,186
2026 and therafter	20,064
Total	70,700
Less: imputed interest	(14,851)
Operating lease liabilities	$ 55,849

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Commitments and Contingencies (Details) $ in Thousands	1 Months Ended
	May 31, 2021 USD ($)	Jan. 31, 2021 patent	Sep. 30, 2020 patent	Jun. 30, 2020 patent	Mar. 31, 2020 patent	Jun. 30, 2021 USD ($)
Other commitments
Contractual commitment for development and option agreement | $	$ 10,000
Payment for third party assets if purchase option is exercised | $	$ 290,000
Total commitments | $						$ 62,722
Material supplier
Other commitments
Total commitments | $						14,207
Application service provider
Other commitments
Total commitments | $						31,853
Other material suppliers
Other commitments
Total commitments | $						16,662
Securities related claims
Other commitments
Estimate of possible loss | $						$ 2,500
CareDX Patent Case
Other commitments
Loss contingency, patents allegedly infringed, number					3
Gain contingency, patents allegedly infringed, number					2
ArcherDX Patent Case
Other commitments
Gain contingency, patents allegedly infringed, number			5
Ravgen Patent Case
Other commitments
Loss contingency, patents allegedly infringed, number				2
Progenity Patent Case
Other commitments
Gain contingency, patents allegedly infringed, number				6
Inivita Patent Case
Other commitments
Gain contingency, patents allegedly infringed, number		2
Claims remaining | Progenity Patent Case
Other commitments
Gain contingency, patents allegedly infringed, number				3
Claims dropped or dismissed | Progenity Patent Case
Other commitments
Gain contingency, patents allegedly infringed, number				3

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Stock-Based Compensation (Details) - USD ($) $ in Thousands	2 Months Ended	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Apr. 30, 2021	Jun. 30, 2020	Dec. 31, 2020	Jun. 30, 2015
Performance-based awards
Stock Based Compensation
Stock-based compensation expense		$ 19,000	$ 3,800	$ 30,000		$ 5,200
Employee and non-employee stock options
Stock Based Compensation
Stock-based compensation expense		$ 35,103	$ 11,957	$ 58,335		$ 19,374
Shares granted				1,355,000
Shares available for issuance	5,093,000	5,093,000		5,093,000			3,197,000
Restricted stock units
Stock Based Compensation
Number of shares vested				1,387,000
Shares granted				1,355,000
2015 Employee Stock Purchase Plan
Stock Based Compensation
Shares reserved for issuance	2,940,084	2,940,084		2,940,084				3,451,495
Shares granted	0				106,435
Proceeds from shares purchased					$ 6,100
Shares reserved for issuance as a proportion of common stock outstanding (as a percent)				4.00%
2015 Employee Stock Purchase Plan | Minimum
Stock Based Compensation
Shares reserved for issuance	880,000	880,000		880,000
Additional shares reserved for issuance	3,500,000	3,500,000		3,500,000
Shares reserved for issuance as a proportion of common stock outstanding (as a percent)				1.00%

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Stock-Based Compensation - Performance-based Awards (Details) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended									6 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2021	Jun. 30, 2020
Fair Market Value
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Valuation Method	Fair Market Value	Fair Market Value	Fair Market Value	Fair Market Value	Fair Market Value	Fair Market Value		Fair Market Value
Black-Scholes Merton
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Valuation Method	Black-Scholes-Merton			Black-Scholes-Merton		Black-Scholes-Merton
Monte-Carlo
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Valuation Method	Monte-Carlo Simulation	Monte-Carlo Simulation	Monte-Carlo Simulation			Monte-Carlo Simulation	Monte-Carlo Simulation		Monte-Carlo Simulation
Performance-based awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 19,000				$ 3,800					$ 30,000	$ 5,200
Restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSUs Granted (in shares)										1,355
Vested (in shares)										1,387
Restricted stock units | Fair Market Value
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSUs Granted (in shares)	7	279	22	27	21	436		188
Vested (in shares)		10	2	13	21	404		81
Restricted stock units | Monte-Carlo
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSUs Granted (in shares)		125	32			300	50		300
Vested (in shares)			6			216	38		260
Employee and non-employee stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Granted (in shares)										390
RSUs Granted (in shares)										1,355
Stock-based compensation expense	$ 35,103				$ 11,957					$ 58,335	$ 19,374
Employee and non-employee stock options | Black-Scholes Merton
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Granted (in shares)	29			10		129
Options Vested (in shares)				10		129
Employee and non-employee stock options | Monte-Carlo
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Granted (in shares)	163	150				150			200
Options Vested (in shares)						94			169

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Stock-Based Compensation - Assumptions (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Performance-based awards
Valuation of Stock Option Grants to Employees
Expected volatility, maximum			60.00%
Risk free interest rate, minimum			0.80%
Risk free interest rate, maximum			1.42%
Performance-based awards | Minimum
Valuation of Stock Option Grants to Employees
Expected term (years)			7 years 3 months
Performance-based awards | Maximum
Valuation of Stock Option Grants to Employees
Expected term (years)			10 years
Expected dividend yield			0.00%
Employee and non-employee stock options
Stock Based Compensation
Options granted (in shares)			390,000
Valuation of Stock Option Grants to Employees
Expected term (years)		10 years
Expected volatility		53.94%
Expected volatility, minimum	56.01%		55.33%	49.94%
Expected volatility, maximum	63.30%		63.30%	58.53%
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Risk free interest rate		0.71%
Risk free interest rate, minimum	0.81%		0.81%	0.44%
Risk free interest rate, maximum	1.67%		1.67%	1.70%
Employee and non-employee stock options | Minimum
Valuation of Stock Option Grants to Employees
Expected term (years)	5 years 1 month 9 days		5 years 1 month 9 days	5 years 3 months 7 days
Employee and non-employee stock options | Maximum
Valuation of Stock Option Grants to Employees
Expected term (years)	10 years		10 years	10 years
Non-employee stock options
Stock Based Compensation
Options granted (in shares)			32,053
Options unvested (in shares)	2,188		2,188

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Stock-Based Compensation - Stock Options (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Employee and non-employee stock options
Stock Based Compensation
Shares available for grant, beginning balance	3,197,000
Additional shares authorized	3,446,000
Options granted (in shares)	(390,000)
Options forfeited (in shares)	31,000
RSUs granted (in shares)	(1,355,000)
RSUs forfeited/cancelled (in shares)	164,000
Shares available for grant, end balance	5,093,000	3,197,000
Number of shares
Outstanding, beginning balance (in shares)	6,707,000
Options granted (in shares)	390,000
Options exercised (in shares)	(782,000)
Options forfeited (in shares)	(31,000)
Outstanding, end balance (in shares)	6,284,000	6,707,000
Exercisable (in shares)	4,823,000
Vested and expected to vest (in shares)	6,194,000
Weighted-Average Exercise Price
Outstanding, beginning balance (in dollars per share)	$ 11.19
Granted (in dollars per share)	104.01
Exercised (in dollars per share)	8.73
Forfeited (in dollars per share)	13.80
Outstanding, end balance (in dollars per share)	17.25	$ 11.19
Exercisable (in dollars per share)	9.93
Vested and expected to vest (in dollars per share)	$ 16.90
Additional disclosures
Weighted average contractual term, options outstanding	5 years 11 months 4 days	6 years 14 days
Exercisable (in years)	5 years 2 months 23 days
Vested and expected to vest (in years)	5 years 10 months 24 days
Aggregate intrinsic value, options outstanding	$ 605,986	$ 592,468
Aggregate intrinsic value, options exercisable	499,683
Aggregate intrinsic value, vested and expected to vest	$ 599,432
Non-employee stock options
Stock Based Compensation
Options granted (in shares)	(32,053)
Number of shares
Options granted (in shares)	32,053
Additional disclosures
Options unvested (in shares)	2,188
Restricted stock units
Stock Based Compensation
RSUs granted (in shares)	(1,355,000)
RSUs forfeited/cancelled (in shares)	164,000

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Stock-Based Compensation - Restricted Stock Units (Details) - Restricted stock units shares in Thousands	6 Months Ended
	Jun. 30, 2021 $ / shares shares
Shares
Balance (in shares) | shares	4,188
Granted (in shares) | shares	1,355
Vested (in shares) | shares	(1,387)
Canceled/Forfeited (in shares) | shares	(164)
Balance (in shares) | shares	3,992
Weighted Average Grant Date Fair Value
Balance (in dollars per share) | $ / shares	$ 34.02
Granted (in dollars per share) | $ / shares	103.67
Vested (in dollars per share) | $ / shares	26.50
Canceled/Forfeited (in dollars per share) | $ / shares	41.33
Balance (in dollars per share) | $ / shares	$ 59.73

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Stock-Based Compensation - Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Employee and non-employee stock options
Stock based compensation expense
Options granted (in shares)			390,000
Stock-based compensation expense	$ 35,103	$ 11,957	$ 58,335	$ 19,374
Unrecognized compensation expense	207,400		$ 207,400
Unrecognized compensation expense, weighted average period of recognition			2 years 9 months 18 days
Employee and non-employee stock options | Cost of revenues
Stock based compensation expense
Stock-based compensation expense	1,275	441	$ 1,983	755
Employee and non-employee stock options | Research and development
Stock based compensation expense
Stock-based compensation expense	6,616	2,913	10,490	4,755
Employee and non-employee stock options | Selling, general and administrative
Stock based compensation expense
Stock-based compensation expense	27,212	8,603	45,862	13,864
Employee stock options
Stock based compensation expense
Stock-based compensation expense	34,697	11,599	57,660	18,847
Employee stock options | Cost of revenues
Stock based compensation expense
Stock-based compensation expense	1,275	441	1,983	755
Employee stock options | Research and development
Stock based compensation expense
Stock-based compensation expense	6,276	2,631	9,926	4,313
Employee stock options | Selling, general and administrative
Stock based compensation expense
Stock-based compensation expense	$ 27,146	8,527	$ 45,751	13,779
Non-employee stock options
Stock based compensation expense
Options granted (in shares)			32,053
Options unvested (in shares)	2,188		2,188
Stock-based compensation expense	$ 406	358	$ 675	527
Non-employee stock options | Research and development
Stock based compensation expense
Stock-based compensation expense	340	282	564	442
Non-employee stock options | Selling, general and administrative
Stock based compensation expense
Stock-based compensation expense	$ 66	$ 76	$ 111	$ 85

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Debt (Details) $ / shares in Units, shares in Thousands		1 Months Ended	3 Months Ended		6 Months Ended
	Mar. 31, 2021 USD ($) $ / shares	Apr. 30, 2020 USD ($) D	Jun. 30, 2021 USD ($) $ / shares shares	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($) $ / shares shares	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($) $ / shares shares	Sep. 30, 2015 USD ($)
Debt Instrument [Line Items]
Proceeds from Convertible Note, net of issuance costs						$ 278,317,000
Common Stock, Par or Stated Value Per Share | $ / shares			$ 0.0001		$ 0.0001		$ 0.0001
Common stock, shares issued | shares			88,498		88,498		86,223
Accrued Interest			$ 1,078,000		$ 1,078,000		$ 1,078,000
Amortization of debt discount and issuance cost					610,000	2,180,000
Interest expense			2,075,000	$ 4,038,000	4,148,000	6,502,000
Convertible Notes
Debt Instrument [Line Items]
Aggregate principal amount		$ 287,500,000	287,500,000		$ 287,500,000
Proceeds from Convertible Note, net of issuance costs		$ 278,300,000
Per annum interest rate (as a percent)		2.25%			2.25%
Interest expense			$ 1,923,000		$ 3,844,000
Common Stock, Par or Stated Value Per Share | $ / shares	$ 0.0001
Debt instrument, term					7 years
Effective interest rate (as a percent)			2.72%		2.72%
Principal amount per convertible note		$ 1,000
Number of threshold consecutive trading days | D		30
Threshold business days | D		5
Conversion price (in dollars per share) | $ / shares	$ 38.79
Initial conversion rate	25.7785
Convertible to shares of common stock	7,411,704
Percentage of principal amount converted	100.00%
Carrying value			$ 279,777,000		$ 279,777,000
Convertible Notes | Accounting Standards Update 2020-06
Debt Instrument [Line Items]
Carrying value							$ 279,167,000
5 consecutive trading day period | Convertible Notes
Debt Instrument [Line Items]
Threshold trading days | D		5
Percentage of conversion price		98.00%
20 trading days period | Convertible Notes
Debt Instrument [Line Items]
Threshold trading days | D		20
Percentage of conversion price		130.00%
Redeemable for cash on or after May 2024
Debt Instrument [Line Items]
Number of threshold consecutive trading days | D		20
Threshold trading days | D		30
Percentage of conversion price		130.00%
Percentage of principal amount converted		100.00%
Line Of Credit-UBS
Debt Instrument [Line Items]
Maximum borrowing capacity								$ 50,000,000.0
Outstanding balance			49,000,000.0		49,000,000.0
Accrued interest			$ 1,000,000.0		1,000,000.0
Interest expense				$ 200,000	$ 300,000	$ 500,000
Line Of Credit-UBS | LIBOR
Debt Instrument [Line Items]
Spread on interest rate (as a percent)					1.10%
2017 Term Loan
Debt Instrument [Line Items]
Debt, repayment amount		$ 79,200,000

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Debt - Discount and Issuance Costs (Details) - Convertible Notes	6 Months Ended
	Jun. 30, 2021
Effective interest rate (as a percent)	2.72%
Debt instrument, term	7 years

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Debt - Convertible Notes Balances (Details) - Convertible Notes - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021
Debt principal balance	$ 287,500	$ 287,500
Unamortized debt discount and debt issuance cost	(7,723)
Net carrying amount	$ 279,777

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Debt - Interest Expense Recognized Related To Convertible Notes (Details) - Convertible Notes - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2021
Cash interest expense
Contractual interest expense	$ 1,617	$ 3,234
Non-cash interest expense
Amortization of debt discount and debt issuance cost	306	610
Total interest expense	$ 1,923	$ 3,844

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Income taxes (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Income Taxes
Income tax expense	$ 242,000	$ 15,000	$ 376,000	$ 38,000
State income tax expense		$ 0		$ 0
Unrecognized tax benefits	12,900,000		12,900,000		$ 11,500,000
Interest and penalties accrued	$ 0		$ 0

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Net Loss per Share - Loss per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Numerator:
Net loss used to compute net loss per share, basic and diluted	$ (116,026)	$ (59,637)	$ (179,879)	$ (95,009)
Denominator:
Weighted-average number of shares used in computing net loss per share, basic and diluted	88,077	79,069	87,387	78,681
Net loss per share, basic and diluted (in dollars per share)	$ (1.32)	$ (0.75)	$ (2.06)	$ (1.21)
Potentially dilutive shares not included in diluted per share calculation			17,718	19,335
Convertible Notes
Denominator:
Convertible, If-converted value in excess of principal			$ 450,100
Potentially dilutive shares not included in diluted per share calculation			7,411	7,411

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Net Loss per Share - Potentially Dilutive Shares (Details) - shares shares in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in diluted per share calculation	17,718	19,335
Employee and non-employee stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in diluted per share calculation	6,284	7,822
Restricted stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in diluted per share calculation	3,992	4,051
Employee stock purchase plan
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in diluted per share calculation	31	51
Convertible Notes
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive shares not included in diluted per share calculation	7,411	7,411

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Subsequent Events (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended
	Jul. 31, 2021	Sep. 30, 2020	Oct. 31, 2019	Apr. 30, 2019	Jun. 30, 2021	Dec. 31, 2020
Subsequent Event [Line Items]
Common stock, shares issued					88,498,000	86,223,000
Equity offering
Subsequent Event [Line Items]
Common stock, shares issued		4,791,665	6,571,428	6,052,631
Stock issued (in dollars per share)		$ 60.00	$ 35	$ 19
Payment of offering expenses		$ 0.3	$ 0.4	$ 0.6
Proceeds from issuance of common stock		$ 271.0	$ 216.2	$ 108.1
Equity offering | Subsequent Event
Subsequent Event [Line Items]
Common stock, shares issued	5,175,000
Stock issued (in dollars per share)	$ 113
Payment of offering expenses	$ 0.4
Proceeds from issuance of common stock	$ 551.2