UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________

FORM 10-Q

_____________________

(Mark One)


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

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

For the quarterly period ended March 31, ~~2020~~2021


☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	~~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: 001-38683

_____________________

GUARDANT HEALTH, INC.

(Exact Name of Registrant as Specified in its Charter)

_____________________



Delaware						45-4139254
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

505 Penobscot Dr.

Redwood City,, California,, 94063

Registrant’s telephone number, including area code: (~~855~~) (855) 698-8887

_______________

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, a 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		☐

~~Large Accelerated Filer~~		☒	~~Accelerated filer~~	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)		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 ☒

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 $0.00001	GH	The Nasdaq Global Select Market

As of April 30, ~~2020,~~2021, the registrant had ~~94,579,349~~101,121,297 shares of common stock, $0.00001 par value per share, outstanding.

GUARDANT HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS


			PART I – FINANCIAL INFORMATION

	~~PART I – FINANCIAL INFORMATION~~Page
		~~Page~~
Item 1.			Unaudited Condensed Consolidated Financial Statements	4
			Condensed Consolidated Balance Sheets	4
			Condensed Consolidated Statements of Operations	65
			Condensed Consolidated Statements of Comprehensive Loss	76
			Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity	87
			Condensed Consolidated Statements of Cash Flows	98
			Notes to the Unaudited Condensed Consolidated Financial Statements	1110
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	3136
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	4753
Item 4.			Controls and Procedures	4754

			PART II – OTHER INFORMATION

Item 1.			Legal Proceedings	4955
Item 1A.			Risk Factors	4955
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	5055
Item 3.			Defaults Upon Senior Securities	5055
Item 4.			Mine Safety Disclosures	5155
Item 5.			Other Information	5155
Item 6.			Exhibits	5256
			Signatures	5357

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are based on our current expectations, estimates, forecasts and projections as well as the current beliefs and assumptions of our management, including about our business, our financial condition, our results of operations, our cash flows, and the industry and environment in which we operate. Statements that include words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “would,” “could,” “should,” “intend” and “expect,” variations of these words, and similar expressions, are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A,“Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and in other reports we file with the U.S. Securities and Exchange Commission, or the SEC. While forward-looking statements are based on the reasonable expectations of our management at the time that they are made, you should not rely on them. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as may be required by law.

Each of the terms the “Company,” “we,” “our,” “us” and similar terms used herein refer collectively to Guardant Health, Inc., a Delaware corporation, and its consolidated subsidiaries, unless otherwise stated.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Guardant Health, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)

March 31, 2020 December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents $ 152,239
$ 143,228
Short-term marketable securities 367,853
379,574
Accounts receivable, net 48,015
47,986
Inventory 25,148
15,181
Prepaid expenses and other current assets 14,137
11,389
Total current assets 607,392
597,358
Long-term marketable securities 238,206
268,783
Property and equipment, net 46,685
43,668
Right-of-use assets 30,132
29,140
Intangible assets, net 17,681
8,524
Goodwill 3,290
3,290
Capitalized license fees 60
6,890
Other assets 4,721
4,882
Total Assets⁽¹⁾
$ 948,167
$ 962,535
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 24,378
$ 16,197
Accrued compensation 22,935
18,557
Accrued expenses 23,073
25,703
Deferred revenue 11,936
12,277
Total current liabilities 82,322
72,734
Long-term operating lease liabilities 33,773
33,256
Obligation related to royalty —
6,880
Other long-term liabilities 1,459
1,672
Total Liabilities⁽¹⁾
117,554
114,542
Redeemable noncontrolling interest 45,500
49,600
Stockholders’ equity:
Common stock, par value of $0.00001 per share; 350,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 94,509,011 and 94,261,414 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively 1
1
Additional paid-in capital 1,157,945
1,150,090
Accumulated other comprehensive income 7,705
1,111
Accumulated deficit (380,538 ) (352,809 )
Total Stockholders’ Equity 785,113
798,393
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity $ 948,167
$ 962,535


	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	869,372	$	832,977
Short-term marketable securities	1,071,078		961,903
Accounts receivable, net	48,039		53,299
Inventory	28,876		22,716
Prepaid expenses and other current assets, net	15,679		17,466
Total current assets	2,033,044		1,888,361
Long-term marketable securities	0		246,597
Property and equipment, net	71,765		62,782
Right-of-use assets	205,671		37,343
Intangible assets, net	15,674		16,155
Goodwill	3,290		3,290

Other assets, net	17,297		17,253
Total Assets(1)	$	2,346,741	$	2,271,781
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,318	$	7,340
Accrued compensation	37,180		28,280
Accrued expenses	27,643		22,639
Deferred revenue	8,360		8,550
Total current liabilities	95,501		66,809
Convertible senior notes, net	1,132,899		806,292
Long-term operating lease liabilities	210,244		41,565

Other long-term liabilities	1,651		1,520
Total Liabilities(1)	1,440,295		916,186

Redeemable noncontrolling interest	59,400		57,100
Stockholders’ equity:
Common stock, par value of $0.00001 per share; 350,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 101,085,653 and 100,213,985 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	1		1
Additional paid-in capital	1,557,954		1,902,389
Accumulated other comprehensive income	904		2,697
Accumulated deficit	(711,813)		(606,592)
Total Stockholders’ Equity	847,046		1,298,495
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity	$	2,346,741	$	2,271,781

(1) As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, this balance includes ~~$42.0~~$33.1 million and ~~$45.1~~$35.0 million of assets, respectively, that can be used only to settle obligations of the consolidated variable interest entity (“VIE”) and VIE’s subsidiaries, and ~~$4.6~~$4.7 million and ~~$5.7~~$4.9 million of liabilities of the consolidated VIE and VIE’s subsidiaries, respectively, for which their creditors do not have recourse to the general credit of the Company. See Note 3, Investment in Joint Venture.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Guardant Health, Inc.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)


	Three Months Ended March 31,							Three Months Ended March 31,
	2020			2019					2021		2020

Revenue:							Revenue:
Precision oncology testing	$	60,246		$	28,837		Precision oncology testing		$	63,729	$	60,246
Development services	7,264			7,818
Development services and other							Development services and other		14,936		7,264
Total revenue	67,510			36,655			Total revenue		78,665		67,510
Costs and operating expenses:							Costs and operating expenses:
Cost of precision oncology testing	18,191			11,023			Cost of precision oncology testing		23,590		18,191
Cost of development services	2,315			2,512
Cost of development services and other							Cost of development services and other		5,157		2,315
Research and development expense	37,016			16,316			Research and development expense		55,508		37,016
Sales and marketing expense	25,115			17,807			Sales and marketing expense		34,338		25,115
General and administrative expense	19,785			12,661			General and administrative expense		67,935		19,785
Total costs and operating expenses	102,422			60,319			Total costs and operating expenses		186,528		102,422
Loss from operations	(34,912		)	(23,664		)	Loss from operations		(107,863)		(34,912)
Interest income	3,318			2,485			Interest income		1,551		3,318
Interest expense	(12		)	(293		)	Interest expense		(646)		(12)
Other (expense) income, net	(209		)	147
Other expense, net							Other expense, net		(290)		(209)
Loss before provision for income taxes	(31,815		)	(21,325		)	Loss before provision for income taxes		(107,248)		(31,815)
Provision for income taxes	14			26
Provision for (benefit from) income taxes							Provision for (benefit from) income taxes		110		14
Net loss	(31,829		)	(21,351		)	Net loss		(107,358)		(31,829)
Adjustment of redeemable noncontrolling interest	4,100			(4,700		)	Adjustment of redeemable noncontrolling interest		(2,300)		4,100
Net loss attributable to Guardant Health, Inc. common stockholders	$	(27,729	)	$	(26,051	)	Net loss attributable to Guardant Health, Inc. common stockholders		$	(109,658)	$	(27,729)
Net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted	$	(0.29	)	$	(0.30	)	Net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted		$	(1.09)	$	(0.29)
Weighted-average shares used in computing net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted	94,382			85,935			Weighted-average shares used in computing net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted		100,955		94,382

The accompanying notes are an integral part of these condensed consolidated financial statements.

Guardant Health, Inc.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Guardant Health, Inc.

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity (unaudited)

(in thousands, except share data)


																		Three Months Ended March 31, 2021
	Redeemable Noncontrolling Interest			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit			Total Stockholders’ Equity				Redeemable Noncontrolling Interest				Common Stock						Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders’ Equity
				Shares	Amount															Shares			Amount
Balance as of December 31, 2019	$	49,600		94,261,414	$	1	$	1,150,090	$	1,111	$	(352,809	)	$	798,393
Balance as of December 31, 2020																	Balance as of December 31, 2020			$	57,100		100,213,985			$	1			$	1,902,389			$	2,697			$	(606,592)			$	1,298,495

Cumulative effect adjustment for ASU 2020-06 adoption																	Cumulative effect adjustment for ASU 2020-06 adoption	—				—		—				(330,403)				—				4,437				(325,966)
Issuance of common stock upon exercise of stock options	—			242,003	—		1,504		—		—			1,504			Issuance of common stock upon exercise of stock options	—				282,879		—				4,462				—				—				4,462
Vesting of restricted stock units	—			5,594	—		—		—		—			—			Vesting of restricted stock units	—				588,789		—				—				—				—				—
Vesting of common stock exercised early	—			—	—		13		—		—			13			Vesting of common stock exercised early	—				—		—				13				—				—				13

Taxes paid related to net share settlement of restricted stock units																	Taxes paid related to net share settlement of restricted stock units	—				—		—				(73,576)				—				—				(73,576)
Stock-based compensation	—			—	—		6,338		—		—			6,338			Stock-based compensation	—				—		—				55,069				—				—				55,069
Adjustment of redeemable noncontrolling interest	(4,100		)	—	—		—		—		4,100			4,100			Adjustment of redeemable noncontrolling interest	2,300				—		—				—				—				(2,300)				(2,300)
Other comprehensive gain, net of tax impact	—			—	—		—		6,594		—			6,594
Other comprehensive loss, net of tax impact																	Other comprehensive loss, net of tax impact	—				—		—				—				(1,793)				—				(1,793)
Net loss	—			—	—		—		—		(31,829		)	(31,829		)	Net loss	—				—		—				—				—				(107,358)				(107,358)
Balance as of March 31, 2020	$	45,500		94,509,011	$	1	$	1,157,945	$	7,705	$	(380,538	)	$	785,113

Balance as of March 31, 2021																	Balance as of March 31, 2021	$	59,400			101,085,653		$	1			$	1,557,954			$	904			$	(711,813)			$	847,046

The accompanying notes are an integral part of these condensed consolidated financial statements.

Guardant Health, Inc.


	Three Months Ended March 31,
	2021		2020

OPERATING ACTIVITIES:
Net loss	$	(107,358)	$	(31,829)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	5,010		3,304
Non-cash operating lease costs	3,932		1,496
Charge of in-process research and development costs with no alternative future use	0		8,500

Re-valuation of contingent consideration	0		(190)
Non-cash stock-based compensation	55,069		6,338
Amortization of debt issuance costs	641		0
Amortization of premium (discount) on marketable securities	3,259		580

Other	0		56
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable, net	5,260		(179)
Inventory	(6,160)		(9,967)
Prepaid expenses and other current assets	521		(2,598)
Other assets	1,202		161
Accounts payable	11,986		9,491
Accrued compensation	8,900		4,378
Accrued expenses and other liabilities	4,399		(624)
Operating lease liabilities	(2,762)		(1,858)
Deferred revenue	(190)		(341)
Net cash used in operating activities	(16,291)		(13,282)
INVESTING ACTIVITIES:
Purchases of marketable securities	(70,654)		(55,760)
Maturity of marketable securities	204,110		104,048

Purchases of property and equipment	(9,586)		(9,598)
Purchase of intangible assets and capitalized license obligations	0		(17,886)

Net cash provided by investing activities	123,870		20,804
FINANCING ACTIVITIES:

Payments made on finance lease obligations	(55)		(38)
Proceeds from issuance of common stock upon exercise of stock options	4,462		1,504

Taxes paid related to net share settlement of restricted stock units	(73,576)		0


Payment of offering costs related to borrowings on convertible senior notes	(784)		0

Net cash (used in) provided by financing activities	(69,953)		1,466
Net effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(1,087)		23
Net increase in cash, cash equivalents and restricted cash	36,539		9,011
Cash and cash equivalents—Beginning of period	832,977		143,228
Cash, cash equivalents and restricted cash—End of period	$	869,516	$	152,239
Supplemental Disclosures of Cash Flow Information:
Operating lease liabilities arising from obtaining right-of-use assets	$	170,847	$	1,957

Three Months Ended March 31,
2020 2019

OPERATING ACTIVITIES:
Net loss $ (31,829 ) $ (21,351 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,304
2,354
Amortization of right-of-use assets 1,496
802
Charge of in-process research and development costs with no alternative future use 8,500
—
Unrealized translation gains (loss) on obligation related to royalty —
(144 )
Re-valuation of contingent consideration (190 ) —
Non-cash stock-based compensation 6,338
3,182
Amortization of premium (discount) on marketable securities 580
(553 )
Others 56
—
Changes in operating assets and liabilities:
Accounts receivable, net (179 ) 11,608
Inventory (9,967 ) (1,120 )
Prepaid expenses and other current assets (2,598 ) (947 )
Other assets 161
(833 )
Accounts payable 9,491
(2,610 )
Accrued compensation 4,378
1,697
Accrued expenses (660 ) 2,308
Operating lease liabilities (1,858 ) 329
Deferred revenue (341 ) 975
Other liabilities 36
—
Net cash used in operating activities (13,282 ) (4,303 )

INVESTING ACTIVITIES:
Purchases of marketable securities (55,760 ) (45,966 )
Maturity of marketable securities 104,048
64,000
Purchases of property and equipment (9,598 ) (2,705 )
Purchase of intangible assets (17,886 ) —
Net cash provided by investing activities 20,804
15,329

FINANCING ACTIVITIES:
Payments made on royalty obligations —
(73 )
Payments made on capital lease obligations (38 ) (21 )
Proceeds from issuance of common stock upon exercise of stock options 1,504
538
Proceeds from issuances of common stock under employee stock purchase plan —
1,933
Payment of offering costs related to initial public offering and follow-on offering —
(89 )
Net cash provided by financing activities 1,466
2,288
Net effect of foreign exchange rate changes on cash and cash equivalents 23
(69 )
Net increase in cash and cash equivalents 9,011
13,245

Cash and cash equivalents—Beginning of period 143,228
140,544
Cash and cash equivalents—End of period $ 152,239
$ 153,789
Supplemental Disclosures of Cash Flow Information:
Operating lease liabilities arising from obtaining right-of-use assets $ 1,957
$ —
Supplemental Disclosures of Noncash Investing and Financing Activities:
Purchases of property and equipment included in accounts payable and accrued expenses $ 1,365
$ 490


	Three Months Ended March 31,
	2021		2020

Supplemental Disclosures of Noncash Investing and Financing Activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	5,881	$	1,365


Property and equipment acquired under finance leases	$	238	$	0

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	869,372	$	152,239

Restricted cash – included in other assets, net	144		0
Total cash, cash equivalents and restricted cash	$	869,516	$	152,239

The accompanying notes are an integral part of these condensed consolidated financial statements.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business

Guardant Health, Inc. (the “Company”) is a leading precision oncology company focused on helping conquer cancer globally through use of its proprietary blood tests, vast data sets and advanced analytics. The key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease, which the Company enables by a routine blood draw, or liquid biopsy. The Guardant Health Oncology Platform is designed to leverage the Company’s capabilities in technology, clinical development, regulatory and reimbursement ~~and~~to drive commercial adoption, toaccelerate drug development, improve patient clinical outcomes and lower healthcare ~~costs and accelerate biopharmaceutical drug development.~~costs. In pursuit of its goal to manage cancer across all stages of the disease, the Company has launched its Guardant360, Guardant360 LDT, Guardant 360 CDx, and GuardantOMNI liquid biopsy-based tests for advanced stage cancer. In February 2021, the Company launched its Guardant Reveal liquid biopsy-based tests for residual and recurring cancer ~~patients, and~~to first address the need in Stage II-III colorectal cancer. The Company is also developing tests from its Guardant360 tissue program which aims to address challenges with tissue genotyping products currently available in the market and its LUNAR program which aims to address the needs of early stage cancer patients with neoadjuvant and adjuvant treatment selection, cancer survivors with surveillance, and asymptomatic individuals eligible for cancer screening and individuals at a higher risk for developing cancer with early detection. Using data collected from the Company's tests, the Company has also developed the GuardantINFORM platform to further accelerate precision oncology drug development by biopharmaceutical companies by offering them an in-silico research platform to further unlock insights into tumor evolution and treatment resistance across various biomarker-driven cancers.

The Company was incorporated in Delaware in December 2011 and is headquartered in Redwood City, California. In May 2018, the Company formed and capitalized Guardant Health AMEA, Inc. (the “Joint Venture”) in the United States with an ~~entity affiliated with SoftBank.~~affiliate of SoftBank Vision Fund (AIV M1) L.P. (“SoftBank”). Under the terms of the joint venture agreement, the Company held a 50% ownership interest in the Joint Venture. As of March 31, ~~2020,~~2021, the Joint Venture has subsidiaries in Singapore and Japan (see Note 3, Investment in Joint Venture) and the Company has a subsidiary in Switzerland, which was incorporated in 2019.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements include the accounts of Guardant Health, Inc. and its consolidated Joint Venture. Other stockholders’ interests in the Joint Venture are shown in the condensed consolidated financial statements as redeemable noncontrolling interest. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company believes that its existing cash and cash equivalents and marketable securities as of March 31, ~~2020~~2021 will be sufficient to allow the Company to fund its current operating plan through at least a period of one year after the date the accompanying condensed consolidated financial statements are issued. As the Company continues to incur losses, its transition to profitability is dependent upon a level of revenues adequate to support the Company’s cost structure. If the Company’s transition to profitability is not consistent with its current operating plan, the Company may have to seek additional capital.

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Estimates are used in several areas including, but not limited to, estimation of variable consideration, estimation of credit losses, standalone selling price allocation included in contracts with multiple performance obligations, ~~the fair value of assets acquired and liabilities assumed for business combinations,~~ goodwill and identifiable intangible assets, stock-based compensation, incremental borrowing rate for operating leases, contingencies, certain inputs into the provision for (benefit from) income taxes, including related reserves, valuation of redeemable noncontrolling interest, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended

periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.

The extent to which the coronavirus 2019, or COVID-19 pandemic will ultimately impact the Company’s business, results of operations, financial conditions, or cash flows iscontinue to be highly ~~uncertain and~~uncertain. As the situation surrounding COVID-2019 remains fluid, it is difficult to predict ~~because it~~the duration of the pandemic and the impact on the Company's business, operations, financial condition and cash flows. The severity of the impact on the Company's business for the remainder of calendar year 2021 and beyond will depend on ~~many~~a number of factors, ~~that are outside~~including, but not limited to, the ~~Company’s control, such as the~~ duration ~~scope~~ and severity of the pandemic, ~~steps required or mandated by governments~~the extent and severity of the impact on the Company's customers and suppliers, the continued disruption to ~~mitigate~~demand for the Company's products and services, and the impact of the ~~pandemic,~~global business and ~~whether COVID-19 can~~economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be ~~effectively prevented, detected, contained and treated, particularly in the markets where the Company operates.~~

Unaudited Interim Condensed Financial Statements

The accompanying condensed consolidated balance sheet as of March 31, ~~2020,~~2021, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, the condensed consolidated statements of redeemable noncontrolling interest and stockholders’ equity for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020, and cash flows for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, and the related interim condensed consolidated disclosures are unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring accruals that the Company believes are necessary to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with GAAP. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period.

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Foreign Currency Translation

The functional currency of the subsidiaries of the consolidated Joint Venture is the local currency. The assets and liabilities of the subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date, with the resulting translation adjustments recorded to a separate component of accumulated other comprehensive loss within stockholders’ equity. Income and expense accounts are translated at average exchange rates during the period. Foreign currency transaction gains and losses resulting from transactions denominated in a currency other than the functional currency are recognized in the condensed consolidated statements of operations. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, foreign currency ~~translation adjustment~~transaction gains and losses were immaterial.

Restricted cash consists of payroll withholding related to the Company's enrollment in certain voluntary disability insurance plan. Restricted cash balance as of March 31, 2021 was ~~immaterial.~~$0.1 million, which was included in other assets in the accompanying consolidated balance sheets. The Company did 0t have any restricted cash as of December 31, 2020.

Concentration of Risk

The Company is subject to credit risk from its portfolio of cash equivalents held at one commercial bank and investments in marketable securities. The Company limits its exposure to credit losses by investing in money market funds through a U.S. bank with high credit ratings. The Company’s cash may consist of deposits held with banks that may at times exceed federally insured limits, however, its exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the condensed consolidated balance sheets. The Company performs evaluations of the relative credit standing of these financial institutions to limit the amount of credit exposure.

The Company also invests in ~~investment‑grade~~investment-grade debt instruments and has policy limits for the amount it can invest in any one type of security, except for securities issued or guaranteed by the U.S. government. The goals of the Company’s investment policy, in order of priority, are as follows: safety and preservation of principal and

diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive ~~after‑tax~~after-tax rate of return. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, investment type and issuer, as a result, the Company is not exposed to any significant concentrations of credit risk from these financial instruments.

The Company is ~~also~~ subject to credit risk from its accounts receivable. The majority of the Company’s accounts receivable arises from the provision of precision oncology services and development services and other in the United States and are primarily with biopharmaceutical companies with high credit ratings. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Accounts receivable are recorded at ~~the invoiced amount and do not bear interest.~~net amount.

A significant customer is a biopharmaceutical customer or a clinical testing payer that represents 10% or more of the Company’s total revenue or accounts receivable balance. Revenue attributable to each significant customer, including its affiliated entities, as a percentage of the Company’s total revenue, for the respective period, and accounts receivable balance attributable to each significant customers, including its affiliated entities, as a percentage of the Company’s total accounts receivable balance, at the respective condensed consolidated balance sheet date, are as follows:


		Revenue				Accounts Receivable, Net
	Three Months Ended March 31,			March 31, 2021		December 31, 2020
		2021						2020

		(unaudited)				(unaudited)
Customer A		*		20	%	13	%		11	%
Customer B		25	%	20	%	*			13	%

Customer C		*		*		*			12	%
Customer D		*		*		*			11	%

Revenue Accounts Receivable, Net
Three Months Ended March 31, March 31, 2020 December 31, 2019
2020 2019

(unaudited) (unaudited)
Customer A 20 % 24 % 38 % 40 %
Customer B 20 % *
*
*
Customer C *
*
*
10 %
The Company is also subject to credit risk from its other receivables and other assets. The Company's other receivables and other assets include payments due from a third-party in relation to the settlement of a patent dispute reached in August 2020 for $8.0 million payable over a period of 6 years. In December 2020, the Company received the first installment payment of $1.0 million. The Company has evaluated and recorded a credit loss for the remaining $7.0 million considering the third-party's credit worthiness and lack of financial history. The following table presents the receivable and the related credit loss amounts:


	Gross Amount				Allowance for Credit Losses								Net Amount
	March 31, 2021		December 31, 2020		Three Months Ended March 31, 2021								March 31, 2021		December 31, 2020
					Beginning Balance		Charged to (Reversed from) Other Income (Expense), Net		Reclassi-fication		Ending Balance

	(unaudited)				(unaudited)								(unaudited)
	(in thousand)
Prepaid expenses and other current assets	$	1,100	$	0	$	0	$	0	$	(1,100)	$	(1,100)	$	0	$	0
Other assets	5,900		7,000		(7,000)		0		1,100		(5,900)		0		$	0

Accounts Receivable, Net

Accounts receivable represent valid claims against biopharmaceutical companies, research institutes and international distributors. The Company evaluates the collectability of its accounts receivable based on historical collection trends, the financial condition of payment partners, and external market factors and provides for an allowance for potential credit losses based on management’s best estimate of the amount of probable credit losses. As of March 31, 2021 and December 31, 2020, the Company ~~recorded $150,000 as~~had immaterial allowance for credit ~~losses.~~losses related to its accounts receivable.

Contract assets are presented under accounts receivable, net and other assets, net on the Company’s condensed consolidated balance sheets and include balances from commercial and governmental payers. Contract assets consists primarily of: i) precision oncology testing revenues to clinical customers that are recognized upon delivery of the test results prior to cash collection; and ii) development services and other revenues to biopharmaceutical

customers that are recognized upon the achievement of performance-based milestones but prior to the establishment of billing rights. Contract assets are relieved when the Company receives payments from clinical customers, or when it invoices the biopharmaceutical customers when milestones are achieved, thereby reclassifying the balances from contract assets to accounts receivable. As of March 31, 2021, the Company had contract assets of $17.8 million which was recorded in accounts receivable, net, which included $3.2 million of unbilled receivable relating to Guardant360 CDx. As of December 31, ~~2019,~~2020, the Company had ~~no allowance for credit losses.~~contract assets of $15.6 million which was recorded in accounts receivable, net, which included $8.4 million of unbilled receivable relating to Guardant360 CDx.

If an acquisition of an asset or group of assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition rather than a business combination. An asset acquisition does not result in the recognition of goodwill and transaction costs are capitalized as part of the cost of the asset or group of assets acquired. Transaction costs allocated to in-process research and development technology with no future alternate use is expensed as incurred. The total consideration is allocated to the various intangible assets acquired on a relative fair value basis. ~~Transaction costs associated with the asset acquisition are capitalized.~~ Cash paid in connection of purchase of in-process research and development technology in an asset acquisition is presented within the investing section of the condensed consolidated statement of cash flows.

Goodwill and Intangible Assets, net

Intangible assets related to in-process research and development costs (“IPR&D”) acquired in a business combination are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. Prior to completion of the research and development efforts, the assets are considered indefinite-lived. During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Goodwill and IPR&D are not amortized but are tested for impairment at least annually during the fourth fiscal quarter, or if circumstances indicate their value may no longer be recoverable. The Company continues to operate in ~~one~~1 segment, which is considered to be the sole reporting unit and, therefore, goodwill was tested for impairment at the enterprise level. As of March 31, ~~2020,~~2021, there has been no0 impairment of goodwill.

Intangible assets are carried at cost, net of accumulated amortization. The Company does not have intangible assets with indefinite useful lives other than goodwill and the acquired IPR&D. Amortization is recorded on a straight-line basis over the intangible asset's useful life, which is approximately ~~6-12~~6—12 years.

The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use (“ROU”) assets and operating leases liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives ~~received.~~received or receivable. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities, as the Company's leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company’s facility leases. The Company also elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for leases with terms of 12 months or less.

Convertible Senior Notes

In accounting for the issuance of the convertible senior notes, the Company separates the notes into liability and equity components. The carrying amount of the liability component is calculated by measuring the fair value of a similar liability that does not have an associated convertible feature, using a discounted cash flow model with a risk adjusted yield. The carrying amount of the equity component representing the conversion option is determined by deducting the fair value of the liability component from the par value of the notes as a whole. This difference represents a debt discount that is amortized to interest expense using the effective interest method over the term of the notes. The equity component is not remeasured as long as it continues to meet the conditions for equity

classification. In accounting for the transaction costs related to the issuance of the notes, the Company allocated the total amount incurred to the liability and equity components based on their relative fair values. Transaction costs attributable to the liability component are netted with the liability component and amortized to interest expense using the effective interest method over the term of the notes. Transaction costs attributable to the equity component are netted with the equity component of the notes in additional paid-in capital in the condensed consolidated balance sheets. Starting January 1, 2021, upon early adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, the carrying amount of the equity component of the cash conversion feature including the allocated debt issuance costs were reclassified from additional paid-in capital to convertible senior notes, net.

The Company derives revenue from the provision of precision oncology testing services provided to its ordering physicians and biopharmaceutical customers, as well as from biopharmaceutical research and development services provided to its biopharmaceutical customers. Precision oncology testing services include genomic profiling and the delivery of other genomic information derived from the Company’s platform. Development services and other include companion diagnostic development, clinical trial setup, monitoring and maintenance, information solutions and laboratory ~~services.~~services, and other miscellaneous revenue streams. The Company currently receives payments from third-party commercial and governmental payers, certain hospitals and oncology centers and individual patients, as well as biopharmaceutical companies, research institutes and ~~research institutes.~~international distributors.

Revenues are recognized when control of services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. ASC 606 provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

Precision oncology testing

The Company recognizes revenue from the sale of its precision oncology tests for clinical customers, including certain hospitals, cancer centers, other institutions and patients, at the time results of the test are reported to physicians. Most precision oncology tests requested by clinical customers are sold without a written agreement; however, the Company determines an implied contract exists with its clinical customers. The Company identifies each sale of its liquid biopsy test to clinical customer as a single performance obligation. With the exception of certain limited contracted arrangements with insurance carriers and other institutions where the transaction price is fixed, a stated contract price does not exist and the transaction price for each implied contract with clinical customers represents variable consideration. The Company estimates the variable consideration under the portfolio approach and considers the historical reimbursement data from third-party commercial and governmental payers and patients, as well as known or anticipated reimbursement trends not reflected in the historical data. The Company monitors the estimated amount to be collected in the portfolio at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Both the estimate and any subsequent revision contain uncertainty and require the use of significant judgment in the estimation of the variable consideration and application of the constraint for such variable consideration. The Company analyzes its actual cash collections over the expected reimbursement period and compares it with the estimated variable consideration for each portfolio and any difference is recognized as an adjustment to estimated revenue after the expected reimbursement period, subject to assessment of the risk of future revenue reversal. For the three months ended March 31, 2021 and 2020, the Company recorded $5.1 million and $7.4 million as revenue, respectively, resulting from cash collections over the expected reimbursement period exceeding the estimated variable consideration related to samples processed in previous periods, including revenue received from successful appeals of reimbursement denials, net of recoupments.

Revenue from sales of precision oncology tests to biopharmaceutical customers are based on a negotiated price per test or on the basis of an agreement to provide certain testing volume over a defined period. The Company identifies its promise to transfer a series of distinct liquid biopsy tests to biopharmaceutical customers as a single performance obligation. Precision oncology tests to biopharmaceutical customers are generally billed at a fixed price for each test performed. For agreements involving testing volume to be satisfied over a defined period, revenue is recognized over time based on the number of tests performed as the performance obligation is satisfied over time. Results of the Company’s precision oncology services are delivered electronically, and as such there are no shipping or handling fees incurred by the Company or billed to customers.

Development services and other

The Company performs development services for its biopharmaceutical customers utilizing its precision oncology information platform. Development services typically represent a single performance obligation as the Company performs a significant integration service, such as analytical validation and regulatory submissions. The individual

promises are not separately identifiable from other promises in the contracts and, therefore, are not distinct. However, under certain contracts, a biopharmaceutical customer may engage the Company for multiple distinct development services which are both capable of being distinct and separately identifiable from other promises in the contracts and, therefore, distinct performance obligations.

The Company collaborates with pharmaceutical companies in the development of new drugs. As part of these collaborations, the Company provides services related to regulatory filings ~~with the FDA~~ to support companion diagnostic device submissions for the Company’s liquid biopsy panels. Under these collaborations, the Company generates revenue from achievement of milestones, as well as provision of on-going support. For development services performed, the Company is compensated through a combination of an upfront fee and performance-based, non-refundable regulatory and other developmental milestone payments. The transaction price of the Company's development services contracts typically represents variable consideration. Application of the constraint for variable consideration to milestone payments is an area that requires significant judgment. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be managed to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone. In making this assessment, the Company considers its historical experience with similar milestones, the degree of complexity and uncertainty associated with each milestone, and whether achievement of the milestone is dependent on parties other than the Company. The constraint for variable consideration is applied such that it is probable a significant reversal of revenue will not occur when the uncertainty associated with the contingency is resolved. Application of the constraint for variable consideration is assessed and updated at each reporting period as a revision to the estimated transaction price.

The Company recognizes development services revenue over the period in which biopharmaceutical research and development services are provided. Specifically, the Company recognizes revenue using an input method to measure progress, utilizing costs incurred to-date relative to total expected costs as its measure of progress. The Company assesses the changes to the total expected cost estimates as well as any incremental fees negotiated resulting from changes to the scope of the original contract in determining the revenue recognition at each reporting period. For development of new products or services under these arrangements, costs incurred before technological feasibility is reached are included as research and development expenses in the Company’s condensed consolidated statements of operations, while costs incurred thereafter are recorded as cost of development ~~services.~~services and other.

The Company also has other miscellaneous revenue streams that are recognized in addition to development services noted above such as clinical trial setup, monitoring and maintenance, referral fees, liquid biopsy testing development and support, GuardantConnect, GuardantINFORM and Guardant-19, and kits fulfillment related revenues. Revenues related to clinical trial setup, monitoring and maintenance, referral fees, liquid biopsy testing development and support, GuardantConnect, GuardantINFORM are generally recognized over time based on an input method to measure progress in the period when the associated services have been performed. Guardant-19 and kits fulfillment related revenues are recognized when such products are delivered.

Contracts with multiple performance obligations

Contracts with biopharmaceutical customers may include multiple distinct performance obligations, such as provision of precision oncology testing, biopharmaceutical research and development services, and clinical trial enrollment assistance, among others. The Company evaluates the terms and conditions included within its contracts with biopharmaceutical customers to ensure appropriate revenue recognition, including whether services are considered distinct performance obligations that should be accounted for separately versus together. The Company first identifies material promises, in contrast to immaterial promises or administrative tasks, under the contract, and then evaluates whether these promises are both capable of being distinct and distinct within the context of the contract. In assessing whether a promised service is capable of being distinct, the Company considers whether the customer could benefit from the service either on its own or together with other resources that are readily available to the customer, including factors such as the research, development, and commercialization capabilities of a third party as well as the availability of the associated expertise in the general marketplace. In assessing whether a promised service is distinct within the context of the contract, the Company considers whether it provides a significant integration of the services, whether the services significantly modify or customize one another, or whether the services are highly interdependent or interrelated.

For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines standalone selling price by considering the historical selling price of these performance obligations in similar transactions as well as other factors, including, but not limited to, the price that customers in the market would be willing to pay, competitive pricing of other vendors, industry publications and current pricing practices, and expected costs of satisfying each performance obligation plus appropriate margin.

Contract assets consists primarily of: i) precision oncology testing revenues to clinical customers that are recognized upon delivery of the test results prior to cash collection; and ii) development services revenues to biopharmaceutical customers that are recognized upon the achievement of performance-based milestones but prior to the establishment of billing rights. Contract assets are relieved when the Company receives payments from clinical customers, or when it invoices the biopharmaceutical customers when milestones are achieved, thereby reclassifying the balances from contract assets to accounts receivable. Contract assets are presented under accounts receivable, net and other assets on

the Company’s condensed consolidated balance sheets. As of March 31, 2020, the Company had contract assets of $9.1 million of which $150,000 was recorded in other assets. As of December 31, 2019, the Company had contract assets of $6.2 million of which $1.0 million was recorded in other assets.

Deferred revenue, which is a contract liability, consists primarily of payments received in advance of revenue recognition from contracts with customers. For example, development services and other contracts with biopharmaceutical customers often contain upfront payments which results in the recording of deferred revenue to the extent cash is received prior to the Company's performance of the related services. Contract liabilities are relieved as the Company performs its obligations under the contract and revenue is consequently recognized. As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the deferred revenue balance was ~~$11.9~~$8.4 million and ~~$12.3~~$8.6 million, respectively, which included ~~$5.5~~$3.6 million and ~~$4.8~~$3.0 million, respectively, related to collaboration development efforts with pharmaceutical companies to be recognized as the Company performs research and development services in the future periods. Revenue recognized in the three months ended March 31, ~~2020~~2021 that was included in the deferred revenue balance as of December 31, ~~2019~~2020 was ~~$4.0~~$5.0 million, of which ~~primarily~~$2.6 million represented revenue from provision of development services under the collaboration ~~agreement~~agreements with biopharmaceutical ~~company.~~customers.

Transaction price allocated to the remaining performance obligations

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods. The Company expects to recognize substantially all of the remaining transaction price in the next 12 months.

Costs of Precision Oncology Testing

Cost of precision oncology testing generally consists of cost of materials, direct labor including bonus, benefit and stock-based compensation, equipment and infrastructure expenses associated with processing liquid biopsy test samples (including sample accessioning, library preparation, sequencing, quality control analyses and shipping charges to transport blood samples), freight, curation of test results for physicians and license fees due to third parties. Infrastructure expenses include depreciation of laboratory equipment, rent costs, amortization of leasehold improvements and information technology costs. Costs associated with performing the Company’s tests are recorded as the tests are performed regardless of whether revenue was recognized with respect to that test. Royalties for licensed technology calculated as a percentage of revenues generated using the associated technology are recorded as expense at the time the related revenues are recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the applicable patent rights.

Cost of Development Services and Other

Cost of development service and other primarily includes costs incurred for the performance of development services requested by the Company’s ~~customers.~~biopharmaceutical customers and other revenues included as noted above. For development of new products, costs incurred before technological feasibility has been achieved are reported as research and development expenses, while costs incurred thereafter are reported as cost of development ~~services.~~services and other.

Research and Development Expenses

Research and development expenses are comprised of costs incurred to develop technology and include compensation and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services and other outside costs. Research and development costs are expensed as incurred. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Costs to develop the Company’s technology capabilities are recorded as research and development unless they meet the criteria to be capitalized as internal-use software costs.

~~Stock‑Based~~

Stock-Based Compensation

~~Stock‑based~~Stock-based compensation related to stock options granted to the Company’s and the Joint Venture's employees, directors and nonemployees 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. Compensation expense for stock options with performance metrics is calculated based upon expected achievement of the metrics specified in the grant.

~~Starting January 1, 2019, upon adoption of Accounting Standards Update (“ASU”) 2018-07, Compensation - Stock Compensation (Topic 718),~~ ~~Improvements to Nonemployee Share-Based Payment Accounting,~~ the fair value of stock options issued to nonemployee consultants is determined as of the grant date, and compensation expense is being recognized over the period that the related services are rendered.

The Company uses the ~~Black‑Scholes option‑pricing~~Black-Scholes option-pricing model to estimate the fair value of ~~its~~ stock options granted under the 2012 Stock Plan, the 2018 Incentive Award Plan, and the Joint Venture's 2020 Equity Incentive Plan, and stock purchase rights granted under ~~its~~the 2018 Employee Stock Purchase Plan. The Black-Scholes option-pricing model requires assumptions to be made related to the expected term of an award, expected volatility, risk-free rate and expected dividend yield. ~~Starting January 1, 2017, forfeitures~~The board of directors of the Joint Venture has determined the fair value of common stock of the Joint Venture. Forfeitures are accounted for as they occur.

For market-based restricted stock units, the Company derives the requisite service period using the Monte Carlo simulation model and the related compensation expense is recognized over the derived service period using an accelerated attribution model commencing on the grant date. Stock-based compensation expense will be recorded regardless of whether the market conditions are achieved or not. If the related market condition is achieved earlier than its estimated derived service period, the stock-based compensation expense will be accelerated, and a cumulative catch-up expense will be recorded during the period in which the market condition is met.

The Company ~~accounts for~~measures the grant date fair value of its service-based and performance-based restricted stock units issued to employees ~~based on the grant date fair value which is determined~~ based on the closing market price of the common stock on the date of grant. ~~The~~For restricted stock units with only service-based vesting conditions, compensation expense is recognized in the Company’s condensed consolidated statement of operations on a straight-line basis over the requisite service period. Compensation expense for restricted stock units with performance metrics is calculated based upon expected achievement of the metrics specified in the grant, and is recognized in the Company’s condensed consolidated statement of operations using an accelerated attribution model over the requisite service period for each separately vesting ~~period.~~portion of the award.

Net Loss Per Share Attributable to Common Stockholders

The Company calculates basic net loss per share attributable to common stockholders by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock ~~method.~~method or the as-if converted method, as appropriate. For purposes of this calculation, stock options, restricted stock units, shares issuable pursuant to the employee stock purchase plan, shares subject to repurchase from early exercised options and contingently issuable shares under the convertible senior notes are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.

Accounting Pronouncements Adopted

~~Financial~~Convertible Instruments and Contracts in an Entity’s Own Equity

In ~~June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326)~~, in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes result in earlier recognition of credit losses. The Company adopted ASU 2016-13 using the modified retrospective approach as of January 1, 2020. The cumulative effect upon adoption was not material to the Company’s condensed consolidated financial statements. The Company will continue to monitor the developments pertaining to the recent coronavirus (COVID-19) pandemic and its impact on expected credit losses.

~~In January 2017,~~August 2020, the FASB issued ASU ~~2017-04~~No. 2020-06, ~~, Intangibles—Goodwill and Other (Topic 350):~~ Simplifying the Test for Goodwill Impairment which eliminates Step 2 from the goodwill impairment test and instead requires entities to perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. ~~The Company adopted this new standard on January 1, 2020. The adoption of this standard did not have a significant impact to the Company’s condensed consolidated financial statements.~~

~~Fair Value Measurements~~

~~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, which eliminates, adds and modifies certain disclosure requirements for fair value measurements in ASC 820,~~ ~~Fair Value Measuremen~~t, as part of its disclosure framework project. The Company adopted this new guidance on January 1, 2020. The adoption of this standard did not have a significant impact on the Company’s condensed consolidated financial statements.

~~Cloud Computing Arrangements~~

~~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~~Convertible Instruments and Contracts in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC Topic 350, ~~Intangibles—Goodwill and Other~~, to determine which implementation costs to capitalize as assets or expense as incurred. The Company adopted this new standard on January 1, 2020 on a prospective basis. The adoption of this standard did not have a significant impact on the Company’s condensed consolidated financial statements.

~~Collaborative Arrangements~~

~~In November 2018, the FASB issued ASU 2018-18 -Collaborative Arrangements (ASC 808)~~ ~~to clarify that certain transactions between participants in a collaborative arrangement should be accounted for under Revenue from contracts with customers (Topic ASC 606)~~ when the counterparty is a customer. The Company adopted this new standard on January 1, 2020. The adoption of this standard did not have a significant impact to the Company’s condensed consolidated financial statements.

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, ~~taxes by removing~~and result in a reclassification of certain ~~exceptions~~conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the ~~general principles in Topic 740. The amendments also improve consistent~~Company’s convertible senior notes. Additionally, ASU 2020-06 requires the application of ~~and simplify GAAP for other areas~~the if-converted method to calculate the impact of ~~Topic 740 by clarifying and amending existing guidance.~~convertible instruments on diluted earnings per share. The Company early adopted this new standard on January 1, 2020.The adoption of this standard did not have a significant impact to the Company’s condensed consolidated financial statements. Under prior GAAP, the Company historically allocated income tax benefit to continuing operations and an offsetting income tax expense to other comprehensive income under the applicable exception to ASC Topic 740. The new standard eliminates this exception and the Company will now determine the tax effect of pre-tax income or loss from continuing operations without regard to the tax effect of other items. The Company applied the new intraperiod tax allocation guidance prospectivelyASU 2020-06 in the ~~period~~first quarter of ~~adoption.~~fiscal 2021 using the modified retrospective approach which resulted in the re-classification of the carrying amount of the equity component of the cash conversion feature including the allocated debt issuance costs as of December 31, 2020 from additional paid-in capital to convertible senior notes, net.

3. Investment in Joint Venture

Variable Interest Entity (“VIE”)

In May 2018, the Company and an affiliate of SoftBank formed and capitalized ~~Guardant Health AMEA, Inc. (the “Joint Venture”)~~the Joint Venture for the sale, marketing and distribution of the Company’s tests in all areas worldwide, outside of North America, Central America, South America, the United Kingdom, all other member states of the European Union as of May 9, 2017, Iceland, Norway, Switzerland and Turkey. The Company expects to rely on the Joint Venture to accelerate commercialization of its products in Asia, the Middle East and ~~Africa, with an initial focus on Japan.~~Africa.

Under the terms of the joint venture agreement, the Company paid $9.0 million for 40,000 shares of common stock, or 50% ownership interest, of the Joint Venture, and the affiliate of SoftBank contributed $41.0 million for 40,000 shares of common stock, or the other 50% ownership interest, of the Joint Venture. ~~Neither~~In June 2020, an amended and restated certificate of incorporation of the Joint Venture, as approved by the board of directors of the Joint Venture, was filed with the Secretary of State of the State of Delaware. The amended and restated certificate of incorporation, among other things, increased the number of authorized shares of common stock to 89,000,000 shares consisting of 80,000,000 shares of Class A common stock and 9,000,000 shares of Class B (non-voting) common stock; and authorized 80,000,000 shares of Series A preferred stock. Pursuant to the amended and restated certificate of incorporation, each share of common stock held by the Company and the affiliate of SoftBank was reclassified and exchanged for 1,000 shares of Series A preferred stock. As a result, each of the Company and the affiliate of SoftBank held 40,000,000 shares of Series A preferred stock. The holders of Series A preferred stock are entitled to receive dividends at the rate of $0.05 per share if and when declared by the board of directors of the Joint Venture. In June 2020, the board of directors of the Joint Venture authorized the adoption of the Joint Venture’s 2020 Equity Incentive Plan pursuant to which 4,595,555 shares of Class B common stock have been reserved for issuance. As of March 31, 2021 and December 31, 2020, 86,110 and 0 shares of Class B common stock have been issued and outstanding, and 0 shares of Class A common stock have been issued and outstanding. As of March 31, 2021 and December 31, 2020, 80,000,000 shares of Series A preferred stock have been issued and outstanding.

Under the terms of the joint venture agreement, neither party ~~has the obligation~~is obligated to ~~provide additional financial support~~make any further capital contribution, in cash or otherwise, to the Joint Venture. The Joint Venture is deemed to be a variable interest entity (“VIE”) and the Company has been identified as the VIE’s primary beneficiary. As the primary beneficiary, the Company has consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances have been eliminated in consolidation.

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Joint Venture had total assets of approximately ~~$42.0~~$33.1 million and ~~$45.1~~$35.0 million, respectively, which were primarily comprised of cash, property and equipment, right-of-use assets and security deposits. Although the Company consolidates the Joint Venture, the legal structure of the Joint Venture limits the recourse that its creditors will have over the Company’s general credit or assets. Similarly, the assets held in the Joint Venture can be used only to settle obligations of the Joint Venture. As of March 31, ~~2020 and December 31, 2019,~~2021, the Company has not provided financial or other support to the Joint Venture that was not previously contracted or required.

Put-call arrangements

The joint venture agreement includes a put-call arrangement with respect to the shares of the Joint Venture held by SoftBank and its affiliates. Under certain specified circumstances and on terms specified in the joint venture agreement, including timely written notice, SoftBank has the right to cause the Company to purchase all shares of the Joint Venture held by SoftBank and its affiliates (the “put right”), and the Company has a right to purchase all such shares (the “call right”).

Each of the Company and SoftBank may exercise its respective put-call rights for the Company to purchase all shares of the Joint Venture held by SoftBank in the event of (i) certain material disagreements relating to the Joint Venture or its business that may seriously affect the ability of the Joint Venture to perform its obligations under the joint venture agreement or may otherwise seriously impair the ability of the Joint Venture to conduct its business in an effective matter, other than one relating to the Joint Venture’s business plan or to factual matters that may be capable of expert determination; (ii) the effectiveness of the Company’s initial public offering, a change in control of the Company, the seventh anniversary of the formation of the Joint Venture, or each subsequent anniversary of each of the foregoing events; or (iii) a material breach of the joint venture agreement by the other party that goes unremedied within 20 business days. Unless the shares of the Joint Venture are publicly traded and listed on a nationally recognized stock exchange, the purchase price per share of the Joint Venture in these situations will be determined by a third-party valuation firm

on the assumption that the sale is on an arm’s-length basis on the date of the put or call notice. The third-party valuation firm may evaluate a range of factors and employ assumptions that are subjective in nature, which could result in the fair value of SoftBank’s interests in the Joint Venture being

determined to be materially different from what has been recorded in the Company’s condensed consolidated financial statements.

In the event the Company exercises its call right, the fair value of the Joint Venture will be deemed to be no less than an amount that yields a 20% internal rate of return on each tranche of capital invested by SoftBank and its affiliates in the Joint Venture, taking into account all proceeds received by SoftBank and its affiliates arising from their shares through such date.

In the event SoftBank exercises its put right and the fair value of the Joint Venture is determined to be greater than 40% of the fair value of the Company, the Company will only be required to purchase the number of shares of the Joint Venture held by SoftBank and its affiliates having an aggregate value equal to the product of 40% of the Company's fair value and the pro rata portion of the outstanding shares of the Joint Venture held by SoftBank and its affiliates.

The Company may pay the purchase price for the shares of the Joint Venture in cash, in shares of its capital stock (which may be a non-voting security with senior preferences to all other classes of its equity or, if its common stock is publicly traded on a national exchange, its common stock), or in a combination thereof. In the event the Company exercises the call right, SoftBank will choose the form of consideration. In the event SoftBank exercises the put right, the Company will choose the form of consideration.

The noncontrolling interest held by SoftBank contains embedded put-call redemption features that are not solely within the Company’s control and has been classified outside of permanent equity in the consolidated balance sheets. The put-call feature embedded in the redeemable noncontrolling interest do not currently require bifurcation as it does not meet the definition of a derivative and is considered to be clearly and closely related to the redeemable noncontrolling interest. The noncontrolling interest is considered probable of becoming redeemable as SoftBank has the option to exercise its put right to sell its equity ownership in the Joint Venture to the Company on or after the seventh anniversary of the formation of the Joint Venture, on each subsequent anniversary of the Company’s initial public offering (the “IPO”) and under certain other circumstances. The Company elected to recognize the change in redemption value immediately as they occur as if the put-call redemption feature were exercisable at the end of the reporting period. The carrying value of the redeemable noncontrolling interest is first adjusted for the earnings or losses attributable to the redeemable noncontrolling interest based on the percentage of the economic or ownership interest retained in the consolidated VIE by the noncontrolling parties, and then adjusted to equal to its redemption amount, or the fair value of the noncontrolling interest held by SoftBank, as if the redemption were to occur at the end of the reporting date.

4. Condensed Consolidated Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consist of the following:

March 31, 2020 December 31, 2019
(unaudited)
(in thousands)
Machinery and equipment $ 32,603
$ 29,119
Computer hardware 7,108
6,296
Leasehold improvements 22,233
21,031
Furniture and fixtures 2,601
1,962
Computer software 930
829
Construction in progress 5,939
6,354
Property and equipment, gross $ 71,414
$ 65,591
Less: accumulated depreciation and amortization (24,729 ) (21,923 )
Property and equipment, net $ 46,685
$ 43,668


	March 31, 2021		December 31, 2020
	(unaudited)
	(in thousands)
Machinery and equipment	$	43,858	$	40,216
Leasehold improvements	35,182		34,037
Computer hardware	14,641		10,862
Construction in progress	12,677		7,833
Furniture and fixtures	3,092		3,043
Computer software	1,134		1,136
Property and equipment, gross	$	110,584	$	97,127
Less: accumulated depreciation	(38,819)		(34,345)
Property and equipment, net	$	71,765	$	62,782

Depreciation ~~and amortization~~ expense related to property and equipment was ~~$3.0~~$4.5 million and ~~$2.1~~$3.0 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Accrued expenses consist of the following:

March 31, 2020 December 31, 2019
(unaudited)
(in thousands)
Accrued royalty obligations $ 350
$ 1,564
Accrued legal expenses 2,951
1,046
Accrued tax liabilities 3,362
3,050
Accrued professional services 3,094
3,464
Accrued clinical trials and studies 2,012
2,029
Purchases of property and equipment included in accrued expenses 281
2,424
Operating lease liabilities 7,307
7,140
Other 3,716
4,986
Total accrued expenses $ 23,073
$ 25,703


	March 31, 2021		December 31, 2020
	(unaudited)
	(in thousands)
Operating lease liabilities	$	7,080	$	6,632
Accrued tax liabilities	5,123		4,634
Accrued professional services	4,985		3,397
Accrued clinical trials and studies	1,946		1,264
Accrued legal expenses	2,226		2,875

Purchases of property and equipment included in accrued expenses	1,492		1,156
Accrued royalty obligations	137		146
Others	4,654		2,535
Total accrued expenses	$	27,643	$	22,639

5. Fair Value Measurements, Cash Equivalents and Marketable Securities

Financial instruments consist of cash equivalents, marketable securities, accounts receivable, net, prepaid expenses and other current assets, net, accounts payable and accrued expenses. Cash equivalents and marketable securities are stated at fair value. Prepaid expenses and other current assets, net, accounts payable and accrued expenses are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.

Fair value is defined as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows:

December 31, 2019
Fair Value Level 1 Level 2 Level 3

(in thousands)
Financial Assets:
Money market funds $ 10,734
$ 10,734
$ —
$ —
Total cash equivalents $ 10,734
$ 10,734
$ —
$ —

Corporate bonds $ 16,690
$ —
$ 16,690
$ —
U.S. government debt securities 362,884 —
362,884 —
Total short-term marketable securities $ 379,574
$ —
$ 379,574
$ —

U.S. government debt securities $ 268,783
$ —
$ 268,783
$ —
Total long-term marketable securities $ 268,783
$ —
$ 268,783
$ —
Total $ 659,091
$ 10,734
$ 648,357
$ —

Financial Liabilities:
Contingent consideration $ 1,365
$ —
$ —
$ 1,365
Total $ 1,365
$ —
$ —
$ 1,365


	December 31, 2020
	Fair Value		Level 1		Level 2		Level 3

	(in thousands)
Financial Assets:
Money market funds	$	620,630	$	620,630	$	0	$	0
Total cash equivalents	$	620,630	$	620,630	$	0	$	0


U.S. government debt securities	$	961,902	$	0	$	961,902	$	0
Total short-term marketable securities	$	961,902	$	0	$	961,902	$	0

U.S. government debt securities	$	246,597	$	0	$	246,597	$	0
Total long-term marketable securities	$	246,597	$	0	$	246,597	$	0
Total	$	1,829,129	$	620,630	$	1,208,499	$	0

Financial Liabilities:
Contingent consideration	$	1,245	$	0	$	0	$	1,245
Total	$	1,245	$	0	$	0	$	1,245

The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities. ~~Corporate bonds,~~ U.S. government debt securities ~~and U.S. government agency bonds~~ are valued taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data and other observable inputs.

Acquisition-related contingent consideration is measured at fair value on a quarterly basis and change in estimated contingent consideration to be paid are included in operating expenses in the condensed consolidated statements of operations. As of March 31, 2021 and December 31, 2020, contingent consideration liability of $1.2 million and $1.2 million, respectively, was recorded within other long-term liabilities on the condensed consolidated balance sheets.

The Company considers the fair value of the redeemable noncontrolling interest as of March 31, 2021 and December 31, 2020 to be a Level 3 measurement. The fair value of the redeemable noncontrolling interest was

determined using a of the income approach and the market approach, and estimates and assumptions include future revenue growth rates, gross profit margins, EBITDA margins, future capital expenditures, weighted average costs of capital and future market conditions, among others.

The following table summarizes the activities for the Level 3 financial instruments for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Redeemable Noncontrolling Interest Contingent consideration
Three Months Ended March 31, Three Months Ended March 31,
2020 2019 2020 2019

(unaudited)
(in thousands)
Fair value — beginning of period
$ 49,600
$ 41,800
$ 1,365
$ —
Increase (decrease) in fair value (3,027 ) 5,022
(190 ) —
Net loss for the period (1,073 ) (322 ) —
—
Fair value — end of period $ 45,500
$ 46,500
$ 1,175
$ —


		Redeemable Noncontrolling Interest					Contingent Consideration
	Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2021		2020

		(unaudited)
		(in thousands)
Fair value — beginning of period		$	57,100	$	49,600		$	1,245	$	1,365

Increase (decrease) in fair value		4,287		(3,027)			0		(190)
Net loss for the period		(1,987)		(1,073)			0		0
Fair value — end of period		$	59,400	$	45,500		$	1,245	$	1,175

AsThe Company considers the fair value of the Convertible Notes as of March 31, ~~2020~~2021 and December 31, ~~2019, contingent consideration liability~~2020 to be a Level 2 measurement. The fair value of ~~$1.2 million~~the Convertible Notes is primarily affected by the trading price of the Company's common stock and ~~$1.4 million, respectively, was recorded within other long-term liabilities on~~market interest rates. As such, the ~~condensed consolidated balance sheets.~~carrying value of the Convertible Notes does not reflect the market rate. See Note 8, Debt, for additional information related to the fair value of the Convertible Notes.

Cash Equivalents and Marketable Securities

The following tables summarizes the Company’s cash equivalents and marketable securities’ amortized costs, gross unrealized gains, gross unrealized losses and estimated fair values by significant investment category:


	March 31, 2021
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value

	(unaudited)
	(in thousands)
Money market fund	$	759,550	$	0	$	0	$	759,550

U.S. government debt securities	1,069,553		1,525		0		1,071,078
Total	$	1,829,103	$	1,525	$	0	$	1,830,628

March 31, 2020
Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Estimated Fair Value

(unaudited)
(in thousands)
Money market fund $ 35,592
$ —
$ —
$ 35,592
Corporate bond 4,035
—
—
4,035
U.S. government debt securities 594,064
7,961
—
602,025
Total $ 633,691
$ 7,961
$ —
$ 641,652

December 31, 2019
Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Estimated Fair Value

(in thousands)
Money market fund $ 10,734
$ —
$ —
$ 10,734
Corporate bond 16,679
11
—
16,690
U.S. government debt securities 630,283
1,422
(39 ) 631,666
Total $ 657,696
$ 1,433
$ (39 ) $ 659,090


	December 31, 2020
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value

	(in thousands)
Money market fund	$	620,630	$	0	$	0	$	620,630

U.S. government debt securities	1,206,195		2,339		(35)		1,208,499
Total	$	1,826,825	$	2,339	$	(35)	$	1,829,129

There have been no material realized gains or losses on marketable securities for the periods presented. None of the Company’s investments in marketable securities has been in an unrealized loss position for more than one year. The Company determined that it did have the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery, thus there has been no recognition of credit losses in the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~The maturities of the Company’s long-term marketable securities range from 1.0 year to 1.7 years as of March 31, 2020.~~

~~The following table presents details of purchased intangible assets as of March 31, 2020 and December 31, 2019:~~

March 31, 2020
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Weighted Average Useful Life

(unaudited)
(in thousands) (in years)
Intangible assets subject to amortization:
Acquired license $ 11,886
$ (499 ) $ 11,387
10.6
Non-compete agreements and other covenant rights 5,100
(406 ) 4,694
5.6
Total intangible assets subject to amortization 16,986
(905 ) 16,081

Intangible assets not subject to amortization:
IPR&D 1,600
—
1,600

Goodwill 3,290
—
3,290

Total purchased intangible assets $ 21,876
$ (905 ) $ 20,971

December 31, 2019
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Weighted Average Useful Life

(in thousands) (in years)
Intangible assets subject to amortization:
Acquired license $ 5,100
$ (373 ) $ 4,727
9.5
Non-compete agreements 2,500
(303 ) 2,197
5.5
Total intangible assets subject to amortization 7,600
(676 ) 6,924

Intangible assets not subject to amortization:
IPR&D 1,600
—
1,600

Goodwill 3,290
—
3,290

Total purchased intangible assets $ 12,490
$ (676 ) $ 11,814

Amortization of finite-lived intangible assets was $229,000 for the three months ended March 31, 2020. NaN amortization of finite-lived intangible assets was recorded for the three months ended March 31, 2019.

~~The following table summarizes estimated future amortization expense of finite-lived intangible assets:~~

Year Ending December 31,
(unaudited)
(in thousands)
Remainder of 2020 $ 1,496
2021 1,909
2022 1,909
2023 1,910
2024 1,915
2025 and thereafter 6,942
Total $ 16,081

6. Patent License Acquisition

In January 2017, the Company entered into a license agreement with a biotechnology company, KeyGene N.V. (“KeyGene”). An arbitration was initiated between the parties in 2018. In March 2020, the Company and KeyGene entered into a settlement and patent license agreement (the “SPLA”) to resolve the dispute and to acquire an extended worldwide non-exclusive license to certain patent rights with respect to KeyGene’s Next Generation

Sequencing technologies along with certain covenant rights and research and development technology for a one-time payment of $18.5 million, ending all future royalty obligations to KeyGene. This transaction was accounted for as an asset acquisition as the purchase did not meet the definition of a business. The total consideration, including $0.6 million of certain capitalizable transaction costs, was allocated to various components of the SPLA.

The Company allocated $9.4 million to the patent and covenant rights granted under the SPLA, which have useful lives in the range of 6-12 years. The Company allocated $8.5 million to IPR&D technology, which have no alternative future use and was included in research and development expenses for the three months ended March 31, 2020. The remaining $1.2 million was allocated to the settlement of the prior dispute between the parties and was included in general and administrative expenses for the three months ended March 31, 2020.

7. Intangible Assets, Net and Goodwill

The following table presents details of purchased intangible assets as of March 31, 2021 and December 31, 2020:


	March 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining Weighted Average Useful Life

	(unaudited)
	(in thousands)						(in years)
Intangible assets subject to amortization:
Acquired license	$	11,886	$	(1,640)	$	10,246	9.5
Non-compete agreements and other covenant rights	5,100		(1,272)		3,828		4.7
Total intangible assets subject to amortization	16,986		(2,912)		14,074
Intangible assets not subject to amortization:
IPR&D	1,600		—		1,600
Goodwill	3,290		—		3,290
Total purchased intangible assets	$	21,876	$	(2,912)	$	18,964


	December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining Weighted Average Useful Life

	(in thousands)						(in years)
Intangible assets subject to amortization:
Acquired license	$	11,886	$	(1,367)	$	10,519	9.8
Non-compete agreements	5,100		(1,064)		4,036		4.9
Total intangible assets subject to amortization	16,986		(2,431)		14,555
Intangible assets not subject to amortization:
IPR&D	1,600		—		1,600
Goodwill	3,290		—		3,290
Total purchased intangible assets	$	21,876	$	(2,431)	$	19,445

Amortization of ~~capitalized license fees relating to the January 2017 license agreement~~finite-lived intangible assets was ~~immaterial for the three months ended March 31, 2020~~$0.5 million and $0.2 million for the three months ended March 31, ~~2019.~~2021 and 2020, respectively.

~~Acquisition of Bellwether Bio~~

In April 2019, the Company purchased all of the outstanding shares of Bellwether Bio, Inc. (“Bellwether Bio”), a privately-held company developing a method for early blood-based cancer detection. The Company accounted for the acquisition as a business combination. The total purchase consideration was $8.7 million, which consisted of i) $7.6 million in cash paid upon closing; and ii) future contingent consideration liability with a fair value of $1.1 million on the acquisition date. The contingent consideration is subject to the achievement of certain commercialization milestones with a maximum payout amount of $10.0 million. The Company will also pay additional earn-out consideration of up to $10.0 million subject to the achievement of certain commercialization milestones and the continued provision of services to the Company by certain former employees and consultants of Bellwether Bio. The contingent consideration and earn-out consideration may be paid, at the Company’s election, in cash or in the Company’s common stock. As of March 31, 2020, the Company did not believe the earn-out consideration is probable to be achieved, and therefore, did not record any compensation expense. The following table summarizes estimated future amortization expense of finite-lived intangible assets—net:


Year Ending December 31,
	(unaudited)
	(in thousands)
Remainder of 2021	$	1,467
2022	1,947
2023	1,947
2024	1,952
2025	1,705
2026 and thereafter	5,056
Total	$	14,074

Convertible Senior Notes

In November 2020, the ~~allocation~~Company issued $1.15 billion principal amount of its 0% Convertible Senior Notes due 2027 (the “2027 Notes”). The 2027 Notes do not bear interest, and the principal amount of the ~~total consideration~~Notes will not accrete. However, special interest and additional interest may accrue on the 2027 Notes at a rate per annum not exceeding 0.50% (subject to certain exceptions) upon the occurrence of certain events such as the failure to file certain reports to the ~~estimated fair values of assets acquired~~Securities and ~~liabilities assumed:~~Exchange Commission, or to remove certain restrictive legends from the Notes. The Notes will mature on November 15, 2027, unless repurchased, redeemed or converted earlier.

Amount
(in thousands)
Cash $ 521
Identified intangible assets 6,700
Goodwill 3,289
Net liabilities assumed (1,802 )
Total $ 8,708

Before August 15, 2027, holders of the 2027 Notes will have the right to convert their 2027 Notes only under the following circumstances:

•during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on March 31, 2021, if the last reported sale price of the Company's common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter (the “sale price condition”);

•during the 5 consecutive business days immediately after any 10 consecutive trading day period (the “measurement period”) if the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period is less than 98% of the product of the last reported sale price of the Company's common stock on such trading day and the conversion rate on such trading day; or

•upon the occurrence of specified corporate events

From and after August 15, 2027, holders of the 2027 Notes may convert their 2027 Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.

The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.

The initial conversion rate is 7.1523 shares of common stock per $1,000 principal amount of 2027 Notes, which represents an initial conversion price of approximately $139.82 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The Company may not redeem the 2027 Notes at its option at any time before November 20, 2024. The Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after November 20, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest and additional interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling any Note for redemption will constitute a Make-

Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

If certain corporate events that constitute a “Fundamental Change” occur, then, subject to a limited exception for certain cash mergers, holders of Notes may require the Company to repurchase their 2027 Notes at a cash repurchase price equal to the principal amount of the 2027 Notes to be repurchased, plus accrued and unpaid special interest and additional interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.

In accounting for the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying amount of the liability component was calculated using a Black-Scholes model by measuring the fair value of a similar instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes as a whole. This difference represents a debt discount that is amortized as interest expense using an effective interest over the term of the 2027 Notes. Effective January 1, 2021, the Company early adopted ASU 2020-06 which resulted in the re-classification of the equity component representing the associated convertible feature and the related debt issuance costs into long-term liabilities with a corresponding impact to retained earnings.

Since the 2027 Notes were not convertible as of March 31, 2021, the net carrying amount of the 2027 Notes was classified as a long-term liability.

The following table ~~presents details~~sets forth the components of the ~~identified intangible assets acquired from~~2027 Notes as of March 31, 2021 and December 31, 2020:


	March 31, 2021		December 31, 2020
	(unaudited)
	(in thousands)
Liability component:
Principal	$	1,150,000	$	1,150,000
Less: debt discount, net of amortization	0		(331,074)
Less: debt issuance costs, net of amortization	(17,101)		(12,634)
Net carrying amount	$	1,132,899	$	806,292

Equity component recorded at issuance:
2027 Notes	$	0	$	335,667
Less: issuance costs	0		(5,264)
Net amount recorded in equity	$	0	$	330,403

The total estimated fair value of the ~~Bellwether Bio acquisition:~~

Fair Value Estimated Useful Life
(in thousands)
Acquired license $ 5,100
10 years
IPR&D 1,600
*
Total $ 6,700

~~In connection with the acquisition~~2027 Notes was $1.5 billion and $1.3 billion as of ~~Bellwether Bio, the Company also entered into non-compete agreements with certain key individuals based on their experience~~March 31, 2021 and importance to the operation of Bellwether Bio. The Company accounted for the covenants not to compete as purchases of intangible assets separate from the business combination as these non-compete agreements were initiated by the Company to protect its interests.December 31, 2020, respectively. The fair value ~~of acquired~~

~~covenants not to compete is estimated to be $2.5 million, which is recorded within intangible assets, net~~was determined based on the ~~condensed consolidated balance sheet~~closing trading price per $100 of the 2027 Notes as of the last day of trading for the period.

The interest expense recognized in relation to amortization of debt issuance costs was $0.6 million for the three months ended 2021, which represented an effective interest rate of 0.2% for the period presented.

To minimize the impact of potential economic dilution upon conversion of the 2027 Notes, the Company entered into convertible note hedge transactions (the "2027 Note Hedges") with respect to its common stock concurrent with the issuance of the Notes. The 2027 Note Hedges cover, subject to customary adjustments, the number of shares of common stock initially underlying the Notes. The strike price of the 2027 Note Hedges will initially be approximately $182.60 per share, which represents a premium of 75% over the last reported sale price of the Company’s common stock of $104.34 per share on November 16, 2020, and is subject to certain adjustments under the terms of the 2027 Note Hedges.

The 2027 Note Hedges will expire upon maturity of the 2027 Notes. The 2027 Note Hedges are separate transactions and are not part of the terms of the 2027 Notes. Holders of the 2027 Notes will not have any rights with

respect to the 2027 Note Hedges. The shares receivable related to the 2027 Note Hedges are excluded from the calculation of diluted earnings per share as they are anti-dilutive.

As these transactions meet certain accounting criteria, the 2027 Note Hedges are recorded in stockholders’ equity and are not accounted for as derivatives. The Company paid an aggregate amount of $90.0 million for the 2027 Note Hedges, which has been recorded as a reduction to additional paid-in capital and will not be amortized over an estimated useful life of 6 years using the straight-line method. Acquisition-related contingent consideration is measured at fair value on a quarterly basis and change in estimated contingent consideration to be paid are included in operating expenses in the condensed consolidated statements of operations.remeasured.

The Company has entered into various operating lease agreements for office space, data center, lab and warehouse use, with remaining terms ranging from 1 year to 812 years some of which include one or more options to renew. As leases approach maturity, the Company considers various factors such as market conditions and the terms of any renewal options that may exist to determine whether it will renew the lease, as such, the Company does not include renewal options in its lease terms for calculating its lease liability, as the renewal options allow it to maintain operational flexibility and the Company is not reasonably certain it will exercise these renewal options at the time of the lease commencement. In July 2020, the Company entered into 2 lease agreements for additional office space in Palo Alto, California ("Palo Alto Lease") and in San Diego, California ("San Diego Lease"). The San Diego Lease has a term of 8 years with rent payments commencing in May 2022. The Palo Alto Lease has a term of 12 years with an option to renew the lease term for an additional ten years which has not been considered in the determination of ROU or the lease liability as the Company does not consider it reasonably certain of exercising the renewal option. Rent payments for the Palo Alto Lease will commence in October 2021. Both leases consist of fixed and variable payments and are being accounting for as operating leases. The Company took possession of these facilities in March 2021 and these leases are being accounted for as operating leases. The Company estimated the incremental borrowing rate to determine the present value of lease payments for the San Diego and Palo Alto leases using trading data of the Company's convertible debt adjusted for credit rating and market yield curves.

Operating lease expense for the three months ended March 31, 2021 and 2020 ~~and 2019~~ was ~~$1.5~~$3.9 million and ~~$0.8~~$1.5 million, respectively, which includes both lease and non-lease components (primarily common area maintenance charges and property taxes).

March 31, 2020 December 31, 2019
(unaudited)

Weighted-average remaining lease term (in years) 6.1
6.4
Weighted-average discount rate 7.75 % 7.77 %


	March 31, 2021		December 31, 2020
	(unaudited)
Weighted-average remaining lease term (in years)	10.5		5.5
Weighted-average discount rate	4.17	%	8.07	%

The following table summarizes ~~our~~the Company's future principal contractual obligations for operating lease commitments as of

March 31, ~~2020:~~2021:

Year Ending December 31,
(in thousands)
Remainder of 2020 $ 5,775
2021 7,977
2022 8,145
2023 8,750
2024 8,942
2025 and thereafter 12,651
Total operating lease payments $ 52,240
Less: Imputed Interest (11,160 )
Total operating lease liabilities $ 41,080


Year Ending December 31,
	(unaudited)
	(in thousands)
Remainder of 2021	$	8,090
2022	21,454
2023	28,976
2024	31,529
2025	32,084
2026 and thereafter	177,406
Total operating lease payments	$	299,539
Less: imputed interest	(57,083)
Less: lease incentives	(25,132)
Total operating lease liabilities	$	217,324

Finance leases are not material to the Company's condensed consolidated financial statements.

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9.	10. Commitments and Contingencies

Legal Proceedings

~~The Company is subject~~In addition to ~~claims~~commitments and ~~assessments from time to time~~obligations incurred in the ordinary course of ~~business.~~business, from time to time the Company may be subject to a variety of claims and legal proceedings, including claims from customers and vendors, pending and potential legal actions for damages, governmental investigations and other matters. For example, the Company has received, and may in the future continue to receive letters, claims or complaints from others alleging false advertising, patent infringement, violation of employment practices and trademark infringement. The Company ~~will accrue~~has also instituted, and may in the future institute, additional legal proceedings to enforce its rights and seek remedies, such as monetary damages, injunctive relief and declaratory relief. The Company cannot predict the results of any such disputes, and despite the potential outcomes, the existence thereof may have an adverse material impact on the Company because of diversion of management time and attention as well as the financial costs related to resolving such disputes.

The Company and its affiliates are parties to the legal claims and proceedings described below. The Company is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these matters, it may be required to pay substantial sums, be subject to injunction and/or be forced to change how it operates its business, which could have a ~~liability for such matters when it~~material adverse impact on its financial position or results of operations.

Unless otherwise stated, the Company is ~~probable that a liability has been incurred and~~unable to reasonably estimate the ~~amount can be reasonably estimated. When only~~loss or a range of possible loss for the matters described below. Often, it is not reasonably possible for the Company to determine that a loss is probable for a claim, or to reasonably estimate the amount of loss or a range of loss, because of the limited information available and the potential effects of future events and decisions by third parties, such as courts and regulators, that will determine the ultimate resolution of the claim. Many of the matters described are at preliminary stages, raise novel theories of liability or seek an indeterminate amount of damages. It is not uncommon for claims to be resolved over a number of years. The Company reviews loss contingencies at least quarterly to determine whether the loss probability has changed and whether it can ~~be established,~~make a reasonable estimate of the ~~most~~possible loss or range of loss. When the Company determines that a loss from a claim is probable ~~amount~~and reasonably estimable, it records a liability in the ~~range~~amount of its estimate for the ultimate loss. The Company also provides disclosure when it is ~~accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for~~reasonably possible that a loss ~~contingency might include, for example, estimates~~may be incurred or when it is reasonably possible that the amount of ~~potential damages, outside legal fees and other directly related costs expected to be incurred. The Company has not~~a loss will exceed its recorded ~~a liability related to such matters as of March 31, 2020.~~

liability.

Patent Disputes

In November 2017, the Company filed ~~separate lawsuits~~a lawsuit against Foundation Medicine, Inc. (“Foundation Medicine”~~) and Personal Genome Diagnostics, Inc. (“Personal Genome Diagnostics”~~) in the United States District Court for the District of Delaware. The Company has alleged that ~~each of the 2 companies~~Foundation Medicine has infringed 4 of the Company’s digital sequencing technology patents. ~~The 2 companies have each~~Foundation Medicine has asserted counterclaims of patent invalidity,

unenforceability under the doctrine of inequitable conduct, license and non-infringement. ~~Personal Genome Diagnostics has also alleged antitrust violations related to the enforcement of the Company’s patent rights. In each lawsuit, the~~The parties are seeking damages, injunctive relief and attorneys’ fees.

~~In March 2018, Personal Genome Diagnostics~~ Discovery in the lawsuit has closed, and a number of pre-trial motions were filed ~~two petitions for post-grant review with~~in September and October 2020. The trial is presently continued pending resolution by the ~~Patent Trial and Appeal Board (“PTAB”) at the United States Patent and Trademark Office, challenging the patentability of 2~~District Court of the ~~patents asserted by the Company. The 2 post-grant review petitions were dismissed with prejudice in July 2018. Subsequently,~~ pre-trial motions.

Foundation Medicine also filed 6 petitions for inter partes review with the ~~PTAB,~~Patent Trial and Appeal Board ("PTAB"), challenging the patentability of all 4 of the patents asserted by the Company. The PTAB denied institution of inter partes review for 4 of the 6 petitions filed by Foundation Medicine and instituted inter partes review for the remaining two petitions. The Company plans to vigorously defend its patent rights during such PTAB actions. At this time, the Company cannot reasonably ascertain the likelihood that any of the remaining challenged patents will be found to be invalid or unenforceable.

~~License Dispute~~On August 31, 2020, the Company and Personal Genome Diagnostics, Inc. settled the patent infringement lawsuit brought by the Company. Under the terms of the confidential settlement, the lawsuit and counterclaims, as well as other challenges to the Company’s patents, have been dismissed.

In November ~~2018,~~2020, the Company filed a ~~request~~lawsuit against Foundation Medicine in the United States District Court for ~~arbitration to~~ the ~~International Chamber~~District of ~~Commerce claiming~~Delaware, wherein the Company alleged that ~~KeyGene~~Foundation Medicine infringes 7 of the Company’s patents. Foundation Medicine has ~~breached its 2017~~asserted counterclaims of patent invalidity, unenforceability under the doctrine of inequitable conduct, license, ~~agreement with the Company. KeyGene counterclaimed~~non-infringement, and that the Company has ~~breached the agreement. The parties were seeking damages, declaratory relief and recovery~~violated Section 2 of ~~costs and fees, among other remedies.~~Sherman Act. On ~~March~~December 10, 2020, the Company ~~and KeyGene entered into~~filed a ~~settlement and patent license agreement. Pursuant~~Motion for a Preliminary Injunction to ~~this agreement,~~prohibit Foundation Medicine from practicing two of the ~~parties terminated this arbitration without~~asserted patents. The court set a hearing on the ~~issuance of an award. See Note 7,~~ ~~Acquisition~~,motion for ~~additional information.~~May 14, 2021. A trial date has not yet been scheduled.

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In March 2021, the Company filed two lawsuits against Foundation Medicine GmbH in the District Court of Munich I in Germany, wherein the Company alleged that Foundation Medicine GmbH infringes 2 of the Company’s patents. Final hearings on this matter are scheduled for December 2021.


~~10.~~	~~Common Stock~~

11. Common Stock

The Company’s common stockholders are entitled to dividends if and when declared by the Company’s Board of Directors (the “Board of Directors”). As of March 31, ~~2020~~2021 and December 31, ~~2019, no~~2020, 0 dividends on the Company's common stock had been declared by the Board of Directors.

The Company’s common stock has been reserved for the following potential future issuances:


	March 31, 2021	December 31, 2020
	(unaudited)
Shares underlying outstanding stock options	2,744,518	3,101,181
Shares underlying unvested restricted stock units	1,117,305	1,118,655
Market-based restricted stock units	2,260,764	3,391,148
Performance-based restricted stock units	396,179	377,922
Shares available for issuance under the 2018 Incentive Award Plan	6,068,129	1,819,223
Shares available for issuance under the 2018 Employee Stock Purchase Plan	1,536,491	1,536,491
Total	14,123,386	11,344,620

March 31, 2020 December 31, 2019
(unaudited)

Shares underlying outstanding stock options 4,227,990
4,494,889
Shares underlying unvested restricted stock units 488,921
496,131
Shares available for issuance under the 2018 Incentive Award Plan 6,422,345
2,726,225
Shares available for issuance under the 2018 Employee Stock Purchase Plan 1,632,531
689,917
Total 12,771,787 8,407,162
Follow-on Public Offering

In June 2020, the Company completed an underwritten public offering, in which it issued and sold 4,312,500 shares of its common stock at a price of $84.00 per share. The Company received net proceeds of $354.6 million after deducting underwriting discounts and commissions and offering expenses payable by the Company.

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12. Stock-Based Compensation


~~11.~~	~~Stock-Based Compensation~~

Stock Option Activity

A summary of the Company’s stock option activity under the 2012 Stock Plan (as amended and restated, the “2012 Plan”) and the 2018 Incentive Award Plan (the “2018 Plan”) and related information is as follows:


		Options Outstanding
	Shares Available for Grant	Shares Subject to Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value

	(unaudited)
						(in thousands)
Balance as of December 31, 2020	1,819,223	3,101,181	$	15.80	6.9	$	350,670
2018 Plan annual increase(1)	3,689,000	—
Granted	(6,954)	6,954	170.45
Exercised	—	(282,879)	15.59
Canceled	42,172	(80,738)	49.72
Restricted stock units granted	(78,836)	—	—
Restricted stock units canceled	63,527	—	—

Market-based restricted stock units canceled	558,254	—	—
Performance-based restricted stock units granted	(33,561)	—	—
Performance-based restricted stock units canceled	15,304	—	—
Balance as of March 31, 2021	6,068,129	2,744,518	$	15.22	6.7	$	377,303
Vested and Exercisable as of March 31, 2021		1,964,591	$	7.69	6.3	$	284,792

Options Outstanding

Shares
Available for Grant
Shares Subject to Options Outstanding Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value

(in thousands)
Balance as of December 31, 2019 2,726,225
4,494,889
$ 10.90
7.7 $ 306,392
2018 plan annual increase⁽¹⁾
3,689,000
—

Granted (6,902 ) 6,902
84.61

Exercised —
(242,003 ) 6.21

Canceled 12,406
(31,798 ) 10.90

Restricted stock units granted (14,548 ) —
—

Restricted stock units canceled 16,164
—
—

Balance as of March 31, 2020 6,422,345
4,227,990
$ 11.29
7.5 $ 253,161
Vested and Exercisable as of March 31, 2020 2,034,629
$ 5.77
7.1 $ 130,646

(1)Effective as of January 1, 2021, an additional 3,689,000 shares of common stock became available for issuance under the 2018 Plan, as a result of the operation of an automatic annual increase provision therein.


~~(1)~~	Effective as of January 1, 2020, an additional 3,689,000 shares of common stock became available for issuance under the 2018 Plan, as a result of the operation of an automatic annual increase provision therein.

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of the options exercised was ~~$17.2~~$38.3 million and ~~$8.1~~$17.2 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

The weighted-average grant date fair value of options granted was ~~$55.05~~$101.21 and ~~$25.90~~$55.05 per share for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Future stock-based compensation for unvested options as of March 31, ~~2020~~2021 was ~~$23.0~~$17.7 million, which is expected to be recognized over a weighted-average period of ~~2.6~~2.7 years.

Restricted Stock Units

A summary of the Company’s restricted stock unit activity excluding the performance-based and market-based restricted stock units under the 2012 Plan and the 2018 Plan and related information is as follows:


	Restricted Stock Units Outstanding	Weighted-Average Grant Date Fair Value

	(unaudited)
Balance as of December 31, 2020	1,118,655	$	92.89
Granted	78,836	167.08
Vested and released	(16,659)	75.94
Canceled	(63,527)	92.02
Balance as of March 31, 2021	1,117,305	$	98.43

Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

Balance as of December 31, 2019 496,131
$ 82.08
Granted 14,548
85.30
Vested (5,594 ) 67.81
Canceled (16,164 ) 71.97
Balance as of March 31, 2020 488,921
$ 82.67

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Future stock-based compensation for unvested restricted stock units as of March 31, ~~2020~~2021 was ~~$33.8~~$94.2 million, which is expected to be recognized over a weighted-average period of 3.3 years.

Performance-based Restricted Stock Units

~~Stock‑Based~~Since November 2020, the Compensation Committee of the Board of Directors started to approve, and the Company started to grant performance-based restricted stock units (“PSUs”) under the 2018 Plan. The PSUs granted to employees consist of financial and operational metrics to be met over a performance period of 4 years and an additional service period requirement of six months after the performance metrics are met. The PSUs granted to a consultant consistent of operational metrics to be met over a performance period of 4 years. The PSUs are expected to be expensed over a period of approximately 4 years to 4.5 years subject to meeting the respective performance metrics and service requirements. As of March 31, 2021, a significant portion of these PSUs are not expected to achieve the related performance metrics, and therefore, no stock-based compensation expense was recorded for the PSUs that were not probable to vest.

A summary of the Company’s performance-based restricted stock unit activity under the 2018 Plan and related information is as follows:


	Performance-based Restricted Stock Units Outstanding	Weighted-Average Grant Date Fair Value

	(unaudited)
Balance as of December 31, 2020	377,922	$	113.40
Granted	33,561	128.88

Canceled	(15,304)	113.40
Balance as of March 31, 2021	396,179	$	114.71

Stock-based compensation recorded for the PSUs for the three months ended March 31, 2021 was $0.3 million. Future stock-based compensation for unvested PSUs that are probable to vest as of March 31, 2021 was $5.2 million, which is expected to be recognized over a weighted-average period of 3.9 years.

Market-based Restricted Stock Units

In May 2020, the Board of Directors approved and granted 1,695,574 market-based restricted stock units (“MSUs”) under the 2018 Plan to each of the Company's Chief Executive Officer and the Company's President and Chief Operating Officer, which is subject to the achievement of market-based share price goals established by the Board of Directors. The MSUs consist of three separate tranches and the vesting of each tranche is subject to the Company's common stock closing price being maintained at or above a predetermined share price goal for a period of 30 consecutive calendar days. The share price goal can be met any time during the seven-year performance period from the date of grant. Upon vesting, the MSUs must be held for a period of six to twelve months depending on the time of vesting within the seven-year performance period. The vesting of the MSUs can also be triggered upon a change in control event and achievement of a certain change in control price goal, or when there is a qualifying termination or in the event of death or disability. The following table presents additional information relating to each MSU award:

Tranche

Price Goal

Number of RSUs

Tranche 1

$120 per share

565,192

Tranche 2

$150 per share

565,191

Tranche 3

$200 per share

565,191

The grant date fair values of the MSUs were determined using a Monte Carlo valuation model for each tranche. The related stock-based compensation expense for each tranche is recognized based on an accelerated attribution method over the estimated derived service period. If the related share price goal is achieved earlier than its expected derived service period, the stock-based compensation expense will be recognized as a cumulative catch-up expense from the grant date to that point in time in achieving the share price goal. The derived service period is the median duration of the successful stock price paths to meet the price goal for each tranche as simulated in the Monte Carlo valuation model. The Monte Carlo valuation model uses assumptions such as volatility, risk-free interest rate, cost of equity and dividend estimated for the performance period of the MSU. The weighted average grant date fair value of the

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MSUs was $67.00 and the weighted average derived service period was estimated to be in the range of 0.83 – 2.07 years.

On January 1, 2021, Tranche 1 of the MSUs became vested because it has met both service requirement and market-based performance metrics as the predetermined share price goal of $120 per share was achieved for a period of 30 consecutive calendar days. A summary of the Company’s market-based restricted stock unit activity under the 2018 Plan and related information is as follows:


	Market-based Restricted Stock Units Outstanding	Weighted-Average Grant Date Fair Value

	(unaudited)
Balance as of December 31, 2020	3,391,148	$	67.00

Vested and released	(572,130)	70.58
Canceled (1)	(558,254)	70.58
Balance as of March 31, 2021	2,260,764	$	65.20

(1)Represented shares withheld by the Company for MSU holders' tax obligation upon release of vested MSUs.

For the three months ended March 31, 2021, stock-based compensation for the MSUs was $43.9 million which was recorded in general and administrative expenses on the condensed consolidated statement of operations. Future stock-based compensation for unvested MSUs as of March 31, 2021 was $71.3 million, which is expected to be recognized over a weighted-average period of 0.9 years. In the event of a change in control, a qualifying termination, death, disability or the share price goal occurring earlier than the estimated derived service period, the stock-based compensation relating to these MSUs could be accelerated. Any MSUs that remain unvested at the end of the seven-year performance period will automatically be forfeited and terminated without further consideration.

AMEA 2020 Equity Incentive Plan

In August 2020, the board of directors of the Joint Venture approved its 2020 Equity Incentive Plan (the “AMEA 2020 Plan”), under which the Joint Venture may grant equity incentive awards such as stock options, restricted stock, restricted stock units, stock appreciation rights and cash-based awards to its employees and non-employees. Stock options granted may be either incentive stock options or nonstatutory stock options. Incentive stock options may be granted only to employees of the Joint Venture or its affiliates. Nonstatutory stock options may be granted to employees, directors and non-employee consultants. Stock options may be granted at an exercise price of not less than the fair market value of the Joint Venture's common stock on the date of grant, determined by the board of directors of the Joint Venture. Options generally vest over 4 years and expire as determined by the board of directors of the Joint Venture, provided that the term of options may not exceed 10 years from the date of grant. For individuals holding more than 10% of the total combined voting power of all classes of stock of the Joint Venture, the exercise price of an option will not be less than 110% of the fair market value of the Joint Venture's common stock on the date of grant, and the term of the option will not exceed 5 years. A total of 4,595,555 shares of the Joint Venture's Class B common stock are initially reserved for issuance under the AMEA 2020 Plan, and the number of shares may be increased in accordance with the terms of the AMEA 2020 Plan.

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A summary of the Joint Venture's stock option activity under the AMEA 2020 Plan and related information is as follows:


		Options Outstanding
	Shares Available for Grant	Shares Subject to Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value

	(unaudited)
						(in thousands)
Balance as of December 31, 2020	542,220	4,053,335	$	0.58	9.6	$	0

Granted	(204,445)	204,445	0.58
Exercised	—	(86,110)	0.58
Canceled	64,447	(64,447)	0.58
Balance as of March 31, 2021	402,222	4,107,223	$	0.58	9.4	$	0
Vested and Exercisable as of March 31, 2021		2,134,221	$	0.58	9.4	$	0

The weighted-average grant date fair value of options granted was $0.33 per share for the three months ended March 31, 2021. Future stock-based compensation for unvested options as of March 31, 2021 was $0.6 million, which is expected to be recognized over a weighted-average period of 2.2 years.

Stock-Based Compensation Expense

The following table presents the effect of employee and ~~non‑employee~~non-employee related ~~stock‑based~~stock-based compensation ~~expense:~~expense including the Joint Venture:

Three Months Ended
March 31,
2020 2019

(unaudited)
(in thousands)
Cost of precision oncology testing $ 303
$ 170
Research and development expense 2,364
1,210
Sales and marketing expense 1,798
826
General and administrative expense 1,873
976
Total stock-based compensation expense $ 6,338
$ 3,182


	Three Months Ended March 31,
		2021		2020

		(unaudited)
		(in thousands)
Cost of precision oncology testing		$	767	$	303
Research and development expense		4,300		2,364
Sales and marketing expense		2,880		1,798
General and administrative expense		47,122		1,873
Total stock-based compensation expense		$	55,069	$	6,338

Valuation of Stock Options

The grant date fair value of stock options was estimated using a Black-Scholes option-pricing model with the following weighted-average ~~assumptions:~~assumptions including the Joint Venture:

Three Months Ended March 31,
2020 2019

(unaudited)
Expected term (in years) 6.06 6.22
Expected volatility 73.3% 66.7%
Risk-free interest rate 1.6% 2.7%
Expected dividend yield —% —%


	Three Months Ended March 31,
		2021	2020

		(unaudited)
Expected term (in years)		6.01 – 6.04	6.06
Expected volatility		63.6% – 66.4%	73.3%
Risk-free interest rate		0.3% – 0.8%	1.6%
Expected dividend yield		0%	0%

The determination of the fair value of stock options on the date of grant using a Black-Scholes option-pricing model is affected by the estimated fair value of ~~the Company’s~~ common stock of the Company and the Joint Venture, as well as

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assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine. The valuation assumptions were determined as follows:

Fair Value of Common Stock

The fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the Nasdaq Global Select Market. The grant date fair value of the Joint Venture's common stock has been determined by the board of directors of the Joint Venture. The grant date fair value of the Joint Venture’s common stock was determined using valuation methodologies which utilize certain assumptions including probability weighting of events, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of marketability. In determining the fair value of the Joint Venture’s common stock, the methodologies used to estimate the enterprise value of the Joint Venture were performed using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Expected Term

The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term.

Expected Volatility

Prior to the commencement of trading of the Company’s common stock on the Nasdaq Global Select Market on October 4, 2018 in connection with the IPO, there was no active trading market for the Company's common stock. Due to limited historical data for the trading of the Company’s common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies in the same industry plus the Company's expected volatility for the available periods. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

The Joint Venture derived the expected volatility from the average historical volatility over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Joint Venture does not have any trading history for its common stock. The Joint Venture will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-Free Interest Rate

The risk-free interest rate is based on the U.S. Treasury rate, with maturities similar to the expected term of the stock options.

Expected Dividend Yield

The Company and the Joint Venture does not anticipate paying any dividends in the foreseeable future and, therefore, uses an expected dividend yield of 0.

Valuation of MSUs

The estimated fair value of the MSUs was determined using a Monte Carlo simulation model. The valuation assumptions used were substantially consistent with the assumption used to value stock options with the exception of the following:

Expected Volatility

Due to limited historical data for the trading of the Company’s common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies and implied volatility of publicly traded options in the same industry plus the Company's expected volatility for the available periods. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

Expected Term

The expected term represents the derived service period for the respective tranches which has been estimated using the Monte Carlo simulation model.

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Risky Rate

The risky rate represents the Company's cost of equity.

Discount for Lack of Marketability

The discount for lack of marketability represents the discount applied for post vest term restrictions and has been derived using the Monte Carlo simulation model.

The following assumptions were used to calculate the stock-based compensation for MSUs: a weighted-average expected term of 0.83 – 2.07 years; expected volatility of 65.5%; a risk-free interest rate of 0.53%; a 0 dividend yield; a risky rate (cost of equity) of 16%; and a discount for post-vesting restrictions of 10.4% – 14.5%.

2018 Employee Stock Purchase Plan

In September 2018, the Company’s Board of Directors adopted and its stockholders approved the 2018 Employee Stock Purchase Plan (the “ESPP”). A total of 922,250 shares of common stock were initially reserved for issuance under the ESPP. Effective as of January 1, 2020, an additional 942,614 shares of common stock became available for issuance under the ESPP, as a result of the operation of an automatic annual increase provision therein.

Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 10% of their earnings for the purchase of the Company’s common stock at a discounted price per share. The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the first or last day of the offering period, whichever is lower. The initial offering period ran from October 2, 2018 to January 31, 2019, the second offering period ran from February 1, 2019 to July 31, 2019, and the third offering period began on August 1, 2019 and ran to November 14, 2019. For subsequent years starting with 2020, the ESPP provides for separate six-month offering periods beginning on May 15 and November 15 of each year.

NoNaN shares were granted or purchased under the ESPP for the three months ended March 31, 2021 and 2020. ~~For the three months ended March 31, 2019, 119,702 shares of common stock were purchased under the ESPP.~~ The total compensation expense related to the ESPP was $0.8 million and $0.5 million for the three months ended March 31, ~~2020~~2021 and ~~2019 was $0.5 million and $0.6 million,~~2020, respectively.

The fair value of the stock purchase right granted under the ESPP was estimated on the first day of each offering period using the Black-Scholes option pricing model. The valuation assumptions used were substantially consistent with the assumption used to value stock options with the exception of the expected term which was based on the term of each purchase period. NaN ESPP shares were granted for the three months ended March 31, 2020. For the three months ended March 31, 2019, the following assumptions were used to calculate the stock-based compensation for each stock purchase right granted under the ESPP: a weighted-average expected life of 0.5 years; expected volatility of 60.2%; a risk-free interest rate of 2.5%; and a 0 dividend yield.

As of March 31, ~~2020,~~2021, the unrecognized stock-based compensation expense related to the ESPP was ~~$0.3~~$0.4 million, which is expected to be recognized over the remaining term of the offering period of 0.1 years.

~~Liabilities for Early Exercise of Employee Options~~

~~The Company allowed certain stock option holders~~13. Net Loss Per Share Attributable to exercise unvested options to purchase shares of the Company’s common stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s employment termination, at the original issuance price, until the options are fully vested. As of March 31, 2020 and December 31, 2019, 21,212 shares and 23,981 shares of common stock were subject to repurchase at weighted-average price of $4.66 per share. As of March 31, 2020 and December 31, 2019, the cash proceeds received for unvested shares of common stock of $0.1 million and $0.1 million, respectively, was recorded within other long-term liabilities on the condensed consolidated balance sheet, respectively. The shares issued pursuant to unvested options have been included in shares issued and outstanding on the condensed consolidated balance sheet and condensed consolidated statement of redeemable noncontrolling interest and stockholders’ equity as such shares are considered legally outstanding.Guardant Health, Inc. Common Stockholders


~~12.~~	~~Net Loss Per Share Attributable to Guardant Health, Inc. Common Stockholders~~

The following table sets forth the computation of the basic and diluted net loss per share attributable to Guardant Health, Inc. common stockholders:

Three Months Ended
March 31,
2020 2019

(unaudited)
(in thousands, except per share data)
Net loss $ (31,829 ) $ (21,351 )
Adjustment of redeemable noncontrolling interest 4,100
(4,700 )
Net loss attributable to Guardant Health, Inc. common stockholders, basic and diluted $ (27,729 ) $ (26,051 )
Net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted $ (0.29 ) $ (0.30 )
Weighted-average shares used in computing net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted 94,382
85,935


	Three Months Ended March 31,
		2021		2020

		(unaudited)
		(in thousands, except per share data)
Net loss		$	(107,358)	$	(31,829)
Adjustment of redeemable noncontrolling interest		(2,300)		4,100
Net loss attributable to Guardant Health, Inc. common stockholders, basic and diluted		$	(109,658)	$	(27,729)
Net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted		$	(1.09)	$	(0.29)
Weighted-average shares used in computing net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted		100,955		94,382

Since the Company was in a loss position for all periods presented, basic net loss per share attributable to Guardant Health, Inc. common stockholders is the same as diluted net loss per share attributable to Guardant Health, Inc. common stockholders, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. The following weighted-average common stock equivalents were excluded from the calculation of diluted net loss per share attributable to Guardant Health, Inc. common stockholders for the periods presented as they had an anti-dilutive effect:

Three Months Ended
March 31,
2020 2019

(unaudited)
(in thousands)
Stock options issued and outstanding 4,345
7,503
Restricted stock units 495
78
ESPP obligation 43
59
Common stock subject to repurchase 22
41
Total 4,905
7,681

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	Three Months Ended March 31,
		2021	2020

		(unaudited)
		(in thousands)
Stock options issued and outstanding (1)		2,912	4,345
Restricted stock units		1,120	495
MSUs		2,646	0
PSUs		407	0
ESPP obligation		47	43
Common stock subject to repurchase		11	22
Convertible senior notes		8,225	0
Total		15,368	4,905


~~13.~~	~~Income Taxes~~

(1) Excludes stock options of 4,107,223 shares outstanding under the AMEA 2020 Plan as of March 31, 2021.

14. Income Taxes

The income tax expense for the three months ended March 31, ~~2020~~2021 was determined based upon estimates of the Company’s effective income tax rates in various jurisdictions. The difference between the Company’s effective income tax rate and the U.S. federal statutory rate is primarily attributable to state income taxes, foreign income taxes, the effect of certain permanent differences, and full valuation allowance against net deferred tax assets.

The income tax expense for the three months ended March 31, 2021 and 2020 relates primarily to state minimum income tax and income tax on the Company’s earnings in foreign jurisdictions. ~~The income tax expense for the three months ended March 31, 2019 relates primarily to state minimum income tax.~~


~~14.~~	~~Segment and Geographic Information~~

15. Segment and Geographic Information

The following table sets forth the Company’s revenue by geographic areas based on the customers’ locations:


	Three Months Ended March 31,
		2021		2020

		(unaudited)
		(in thousands)
United States		$	72,300	$	64,613
International (1)		6,365		2,897
Total revenue		$	78,665	$	67,510

Three Months Ended
March 31,
2020 2019

(unaudited)
(in thousands)
United States $ 64,613
$ 31,245
International (1)
2,897
5,410
Total revenue
$ 67,510
$ 36,655
(1) No single country outside of the United States accounted for more than 10% of total revenue during the three months ended March 31, 2021 and 2020, respectively.


~~(1)~~	No single country outside of the United States accounted for more than 10% of total revenue during the three months ended March 31, 2020 and 2019, respectively, except for Germany which accounted for 10% of total revenue during the three months ended March 31, 2019.

As of March 31, ~~2020~~2021 and December 31, ~~2019, substantially all~~2020, 98% and 94%, respectively, of the Company’s long-lived assets and right-of-use assets are located in the United States.


~~15.~~	~~Related Party Transactions~~

16. Related Party Transactions

As discussed in Note 3, Investment in Joint Venture, the Company and an affiliate of SoftBank formed and capitalized the Joint Venture to accelerate commercialization of its products in Asia, the Middle East and ~~Africa, with an initial focus on Japan.~~Africa. The Company has consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances have been eliminated in consolidation.

The Company and its subsidiaries may, in the ordinary course of business, have transactions with unaffiliated companies of which certain of the Company’s directors are directors and/or executive officers. The Company believes that such transactions are on the same terms generally offered by such other companies to other entities in comparable transactions. The Company does not consider the amounts involved in such transactions to be material in relation to its businesses, the businesses of such other companies or the interests of the directors involved. Revenue from an entity affiliated with a member of the Company's Board of Directors was $0.5 million and $0.9 million for the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020, the Company has accounts receivable from this entity of $2.2 million and $1.8 million, respectively.

In October 2020, SoftBank entered into an underwriting agreement with an independent third party and sold 7,700,000 shares of the Company's common stock. The Company did not sell any shares of its common stock in this transaction.

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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 together with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, beliefs, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.

Overview

We are a leading precision oncology company focused on helping conquer cancer globally through use of our proprietary ~~blood~~blood-based tests, vast data sets and advanced analytics. We believe that the key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease, which we intend to enable by a routine blood draw, or liquid biopsy. Our Guardant Health Oncology Platform is designed to leverage our capabilities in technology, clinical development, regulatory and reimbursement to drive commercial adoption, accelerate drug development, improve patient clinical outcomes and lower healthcare costs. In pursuit of our goal to manage cancer across all stages of the disease, we have launched our Guardant360, Guardant360 LDT, Guardant360 CDx, and GuardantOMNI liquid biopsy-based tests for advanced stage cancer. ~~Our~~In February 2021, we launched our Guardant Reveal liquid biopsy-based tests for residual and recurring cancer to first address the need in Stage II-III colorectal cancer. We are developing tests under our Guardant360 ~~test, launched~~tissue program which aims to address challenges with tissue genotyping products currently available in ~~2014, has been used by more than 7,000 oncologists, over 50 biopharmaceutical companies~~the market and all 28 National Comprehensive Cancer Network, or NCCN, Centers. Our GuardantOMNI test, launched in 2017, has been used by our biopharmaceutical customers as a comprehensive genomic profiling tool to help accelerate clinical development programs in both immuno-oncology and targeted therapy. These tests ~~fuel development of~~from our LUNAR program which aims to address the needs of early stage cancer patients with neoadjuvant and adjuvant treatment selection, cancer survivors with surveillance, asymptomatic individuals eligible for cancer screening, and individuals at a higher risk for developing cancer with early detection. ~~Our LUNAR-1 assay was launched in 2018 for research use and in late 2019 for investigational use.~~

Since our inception, we have devoted substantially all of our resources to research and development activities related to our Guardant360 and GuardantOMNI tests and our LUNAR program, including clinical and regulatory initiatives to obtain approval by the U.S. Food and Drug Administration, or the FDA, as well as sales and marketing activities. We have over 50 approved, completed or active clinical outcomes studies, more than 150 peer-reviewed publications and more than 400 scientific abstracts. We are pioneering the clinical comprehensive liquid biopsy market withalso developed our

Guardant360 and GuardantOMNI tests, both of which analyze circulating tumor DNA in blood. Our Guardant360 test is a molecular diagnostic test measuring 74 cancer-related genes and has been used by clinicians GuardantINFORM platform to ~~help inform which therapy may be effective for advanced stage cancer patients with solid tumors and~~further accelerate precision oncology drug development by biopharmaceutical companies ~~for a range of applications, including identifying target patient populations~~by offering them an in-silico research platform to ~~accelerate translational science research, clinical trial enrollment,~~unlock further insights into tumor evolution and drug development, and post-approval commercialization. Our GuardantOMNI test has a broader 500-gene panel, including genes associated with homologous recombination repair deficiency and biomarkers for immuno-oncology applications, such as tumor mutational burden and microsatellite instability, and has achieved comparable analytical performance in clinical studies, including for translational science applications in collaboration with several biopharmaceutical companies, including AstraZeneca, Bristol-Myers Squibb, Merck MSD, Merck KGaA of Darmstadt, Germany and Pfizer.

Our Guardant360 and GuardantOMNI tests have each been designated by the FDA as a breakthrough device for use as a companion diagnostic in connection with certain specified therapeutic products of our biopharmaceutical customers. Among other things, designation as a breakthrough device provides for priority review by the FDA and more interactive communication with the FDA during the development process. Our Guardant360 and GuardantOMNI tests are both being developed as companion diagnostics under collaborations with biopharmaceutical companies, including AstraZeneca and Amgen.

treatment resistance across various biomarker-driven cancers.

We perform our ~~Guardant360, GuardantOMNI and other~~ tests in our clinical laboratory located in Redwood City, California. Our laboratory is certified pursuant to the Clinical Laboratory Improvement Amendments of 1988, or CLIA, accredited by the College of American Pathologists, or CAP, permitted by the New York State Department of Health, or NYSDOH, and licensed in California and four other states. In September 2020, we dual-launched our Guardant360 CDx and Guardant360 LDT tests. Our Guardant360 CDx test was the first comprehensive liquid biopsy test approved by the U.S. Food and Drug Administration, or the FDA, to provide tumor mutation profiling for cancer patients with solid tumors and to be used as a companion diagnostic initially in connection with one therapeutic product of a biopharmaceutical customer.

We generated total revenue of $78.7 million and $67.5 million for the three months ended March 31, 2021 and 2020, respectively. We also incurred net losses of $107.4 million and $31.8 million for the three months ended March 31, 2021 and 2020, respectively. We have funded our operations to date principally from the sale of our stock, convertible senior notes, and revenue from our precision oncology testing and development services and other. As of March 31, 2021, we had cash, cash equivalents and marketable securities of $1.9 billion.

~~The analytical~~

Factors affecting our performance

We believe there are several important factors that have impacted and ~~clinical data~~ that we expect will impact our operating performance and results of operations, including:

•Testing volume, pricing and customer mix. Our revenue and costs are affected by the volume of testing and mix of customers from period to period. We evaluate both the volume of tests that we perform for patients on behalf of clinicians and the number of tests we perform for biopharmaceutical companies. Our performance depends on our ability to retain and broaden adoption with existing customers, as well as attract new customers. We believe that the test volume we receive from clinicians and biopharmaceutical companies are indicators of growth in each of these customer verticals. Customer mix for our tests has the potential to significantly affect our results of operations, as the average selling price for biopharmaceutical sample testing is currently higher than our average reimbursement for clinical tests because we are not a contracted provider for, or our tests are not covered by clinical patients’ insurance for, the majority of the tests that we perform for patients on behalf of clinicians. Approximately 35% and 38% of our U.S. clinical tests for the three months ended March 31, 2021 and 2020, respectively, were for Medicare beneficiaries.

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•Payer coverage and reimbursement. Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payers, including both commercial and government payers. Precision oncology revenue from tests for clinical customers is calculated based on our expected cash collections, using the estimated variable consideration. The variable consideration is estimated based on historical collection patterns as well as the potential for changes in future reimbursement behavior by one or more payers. Estimation of the impact of the potential for changes in reimbursement requires significant judgment and considers payer' past patterns of changes in reimbursement as well as any stated plans to implement changes. Any cash collections over the expected reimbursement period exceeding the estimated variable consideration is recorded in future periods based on actual cash received. Payment from commercial payers can vary depending on whether we have ~~generated in our efforts to establish clinical utility, combined~~entered into a contract with the ~~support~~payers as a “participating provider” or do not have a contract and are considered a “non-participating provider”. Payers often reimburse non-participating providers, if at all, at a lower amount than participating providers. Because we ~~have developed~~are not contracted with ~~key opinion leaders,~~these payers, they determine the amount that they are willing to reimburse us for any of our tests and they can prospectively and retrospectively adjust the amount of reimbursement, adding to the complexity in estimating the variable consideration. When we contract with a payer to serve as a participating provider, reimbursements by the payer are generally made pursuant to a negotiated fee schedule and are limited to only covered indications or ~~KOLs,~~where prior approval has been obtained. Becoming a participating provider can result in higher reimbursement amounts for covered uses of our tests and, potentially, no reimbursement for non-covered uses identified under the ~~oncology space have led to positive coverage decisions~~payer’s policies or the contract. As a result, the potential for more favorable reimbursement associated with becoming a participating provider may be offset by a ~~number~~potential loss of ~~commercial payers. Our~~reimbursement for non-covered uses of our tests. Current Procedural Terminology, or CPT, coding plays a significant role in how our Guardant360 test is ~~currently covered~~reimbursed both from commercial and governmental payers. In addition, Z-Code Identifiers are used by certain payers, including under Medicare's Molecular Diagnostic Services Program, or MolDx, to supplement CPT codes for molecular diagnostics tests such as our Guardant360 test. Changes to the codes used to report the Guardant360 test to payers may result in significant changes in its reimbursement. If a coding change were to occur, including as a result of the FDA approval of our Guardant360 test, payments for certain uses of the Guardant360 test could be reduced, put on hold, or eliminated by such payers. Cigna, Priority Health, multiple Blue Cross Blue Shield plans as well as the health plans associated with eviCore ~~which have~~ adopted policies that ~~specifically~~ cover ~~Guardant360 test for non-small cell lung cancer, or NSCLC, which we believe gives us a competitive advantage with these payers.~~

In July 2018, Palmetto GBA, the Medicare Administrative Contractor, or MAC, responsible for administering Medicare’s Molecular Diagnostic Services Program, or MolDx, issued a local coverage determination, or LCD, for our Guardant360 test for the majority of NSCLC patients ~~who meet certain clinical criteria. Subsequently~~we test. If their policies were to change in ~~2018, Noridian Healthcare Solutions, or Noridian, a participant in MolDx and~~ the ~~MAC responsible for adjudicating claims in California, where~~future to cover additional cancer indications, we anticipate that our ~~laboratory is located, also finalized its LCD for our Guardant360 test. Pursuant to this Noridian LCD, in September 2018, we began to submit claims for~~total reimbursement for Guardant360 clinical testing performed for NSCLC patients covered under the LCD who meet certain clinical criteria, and in October 2018, we began to receive payments for these services from Medicare.

~~We estimate that approximately 75% of Medicare patients tested for NSCLC are covered by the LCDs for NSCLC patients.~~ would increase. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, approximately ~~43%~~41% and ~~47%~~43% of our U.S. clinical tests were for patients tested for ~~NSCLC.~~

NSCLC. In ~~December 2019, Palmetto GBA finalized its expanded LCD~~March 2020, we began to receive reimbursement from Medicare for ~~our~~claims submitted, with respect to Guardant360 ~~test to provide limited Medicare coverage for use of Guardant360~~clinical tests performed for qualifying patients diagnosed with solid tumor cancers of non-central nervous system origin other than NSCLC. Following the FDA approval of our Guardant360 CDx test, a new Z-Code Identifier was issued in August 2020. A proprietary laboratory analyses, or PLA code was issued for our Guardant360 CDx in January 2021 with an effective date in ~~February 2020. In May 2019, Noridian also issued an expanded draft LCD~~April 2021. Once the code is effective, all Guardant360 CDx services will be billed with this new code. Additionally, based on this new PLA code, we applied to the Centers for Medicare and Medicaid Services or CMS for our Guardant360 CDx test ~~consistent~~to become an advanced diagnostic laboratory test, or ADLT. In March 2021, CMS approved ADLT status to the Guardant360 CDx test, which would allow us to bill Medicare at the lowest available commercial rate for the first three quarters at the launch of the test. After the initial three quarters, we can bill Medicare for Guardant360 CDx services at the median rate of claims paid by commercial payers. We are in the process of negotiating reimbursement for our Guardant Reveal test from commercial and governmental payers. Due to the inherent variability and unpredictability of the reimbursement landscape, including related to the amount that payers reimburse us for any of our tests, previously recorded revenue adjustments are not indicative of future revenue adjustments from actual cash collections, which may fluctuate significantly. This variability and unpredictability could increase the risk of future revenue reversal and result in our failing to meet any previously publicly stated guidance we may provide.

•Biopharmaceutical customers. Our revenue also depends on our ability to attract, maintain and expand relationships with biopharmaceutical customers. As we continue to develop these relationships, we expect to support a growing number of clinical trials globally and continue to have opportunities to offer our platform to such customers for development services, including companion diagnostic development, novel target discovery and validation, as well as clinical trial enrollment. For example, our Guardant360, Guardant360 CDx, and GuardantOMNI tests are being developed as companion diagnostics under collaborations with biopharmaceutical companies, including AstraZeneca, Amgen, Daiichi Sankyo, Janssen Biotech, and Radius Health.

•Research and development. A significant aspect of our business is our investment in research and development, including the development of new products. In particular, we have invested heavily in clinical studies as we

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believe these studies are critical to gaining physician adoption and driving favorable coverage decisions by payers. With respect to our LUNAR program, we initiated a prospective screening study, which we refer to as the ECLIPSE trial, aiming to recruit approximately 10,000 patients and evaluate the performance of our LUNAR-2 assay in detecting colorectal cancer in average-risk adults. In addition, we are investing very heavily in establishing clinical utility of our Guardant Reveal test in adjuvant treatment settings. In 2020, we launched three trials in collaboration with key cancer researchers: COBRA, a randomized controlled study, comprising over 1,400 low-risk stage-II colon cancer patients, ACT-3, comprising over 500 stage-III colorectal cancer patients, and PEGASUS for the de-escalation of therapy, encompassing over 140 high-risk stage-II and stage-III colon cancer patients. We have expended considerable resources, and expect to increase such expenditures over the next few years, to support our research and development programs with the ~~expanded draft LCD issued by Palmetto GBA~~goal of fueling further innovation.

•International expansion. A component of our long-term growth strategy is to expand our commercial footprint internationally, and we expect to increase our sales and marketing expense to execute on this strategy. We currently offer our tests in March 2019. We believe that, in accordance with the 21st Century Cures Act, Noridian needs to finalize its expanded draft LCD by May 16, 2020. We cannot predict whether and when Noridian will be able to issue a final expanded LCD equivalent to the expanded LCD issued by Palmetto GBA. We also cannot predict whether Noridian will retire the current draft expanded LCD if it does not finalize such draft LCD by May 16, 2020, nor whether Noridian will issue another draft expanded LCD if it retires the current draft LCD.

Incountries outside the United States ~~we market our tests to clinical customers~~primarily through our sales organization, which is engaged in sales efforts and promotional activities primarily targeting oncologists and cancer centers. Outside the United States, we market our tests to clinical customers through distributors anddistributor relationships or direct contracts with ~~healthcare institutions. We also market our tests~~hospitals or partnerships with research organizations. In May 2018, we formed and capitalized a joint venture, Guardant Health AMEA, Inc., which we refer to ~~biopharmaceutical customers globally through our business development team, which promotes~~as the ~~broad utility~~Joint Venture, with SoftBank, relating to the sale, marketing and distribution of our tests ~~throughout drug development~~generally outside the Americas and ~~commercialization. Additionally, we have established a joint venture with SoftBank~~Europe. We expect to rely on the Joint Venture to accelerate commercialization of our products ~~including~~ in Asia, the Middle East and ~~Africa, with~~Africa.

•Sales and marketing expense. Our financial results have historically, and will likely continue to, fluctuate significantly based upon the impact of our ~~initial focus being on Japan. Our products are currently marketed~~sales and marketing expense, increase in ~~approximately 40 countries.~~

headcount, and in particular, our various marketing programs around existing and new product introductions.

•General and administrative expense. Our financial results have historically, and will likely continue to, fluctuate significantly based upon the impact of our general and administrative expense, and in particular, our stock-based compensation expense. Our equity awards, including market-based and performance-based restricted stock units, are intended to retain and incentivize employees to lead us to sustained, long-term superior financial and operational performance.

•COVID-19 Global Pandemic. The ~~recent~~ global outbreak of coronavirus 2019, or COVID-19, has disrupted, and we expect will continue to disrupt, our operations. To protect the health and well-being of our workforce, partners, vendors and customers, we have r~~olled-out~~provided free ~~voluntary~~ COVID-19 testing for all of our employees, ~~working on-site,~~contractors and their dependents, implemented social distance and building entry policies at work, restricted travel and facility visits, and followed California’s “shelter in place” public health orders and the guidance from the Centers for Disease Control and Prevention. ~~Employees who can perform their duties remotely are asked to work from home and those on site are asked to follow our social distance guidelines.~~ ~~Our sales, marketing and business development efforts are also constrained by our operational response to the COVID-19 pandemic.~~ We expect to continue to adjust our operational norms in an effort to help slow the spread of COVID-19 in the coming months, including complying with government directives and guidelines as they are modified and supplemented.

The COVID-19 global pandemic also has started to negatively affect, and we expect will continue to negatively affect, our revenue and our clinical studies. For example, ~~cancer patients may have more limited access to hospitals, healthcare providers and medical resources as they take steps to control the spread of COVID-19. Our~~our biopharmaceutical customers are facing challenges in recruiting patients and in conducting clinical trials to advance their pipelines, for which our tests could be utilized. ~~As a result~~We launched our Guardant-19 test and received the FDA’s emergency use authorization for use in the detection of the ~~COVID-19 pandemic, beginning in~~novel coronavirus. The test is being offered to our employees and select partner organizations our CLIA-certified clinical laboratory. We cannot predict the ~~latter half of March 2020, we have been receiving fewer samples for testing on a daily average basis from our clinical and biopharmaceutical customers than before~~extent to which the ~~outbreak of the COVID-19 pandemic.~~ Further, our clinical studies, especially those such as our ECLIPSE trial and the COBRA study that are deemed as preventive care or are not part of a standard of care, as well as our development services arrangements with our biopharmaceutical customers, are expected to take longer to complete, if at all, than what we expected before the outbreak of the COVID-19 pandemic.

The limited availability of broad-based COVID-19 diagnostic testing has hindered recovery efforts to date. As a result, in early April 2020 we initiated a feasibility assessment that has included our research and development team working to determine our ability to bring a new COVID-19Guardant-19 test to market utilizing our current laboratory facilities, as well as our outreach to potential public and private partners for their assistance in operationalizing such test. However, this assessment is still in progress, and we have not yet determined the scale and financial elements of any program that may result from this assessment.

The ultimate impact of the COVID-19 pandemic on our business and financial condition will depend on many factors, including the duration of the outbreak and the mitigation requirements affecting our operations, and healthcare delivery and society in general. As a result, we expect our revenue and results of operations to be adversely affected until testing, treatments and vaccines substantially eliminate the impact of the COVID-19 pandemic.

We generated total revenue of $67.5 million and $36.7 million for the three months ended March 31, 2020 and 2019, respectively. We also incurred net losses of $31.8 million and $21.4 million for the three months ended March 31, 2020 and 2019, respectively. We have funded our operations to date principally from the sale of our stock and revenue from our precision oncology testing and development services. As of March 31, 2020, we had cash, cash equivalents and marketable securities of $758.3 million.

~~Factors affecting our performance~~

~~We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations, including:~~

•

~~Testing volume, pricing and customer mix.~~ Our revenue and costs are affected by the volume of testing and mix of customers from period to period. We evaluate both the volume of tests that we perform for patients on behalf of clinicians and the number of tests we perform for biopharmaceutical companies. Our performance depends on our ability to retain and broaden adoption with existing customers, as well as attract new customers. We believe that the test volume we receive from clinicians and biopharmaceutical companies are indicators of growth in each of these customer verticals. Customer mix for our tests has the potential to significantly affect our results of operations, as the average selling price for biopharmaceutical sample testing is currently higher than our average selling price for clinical tests because we are not a contracted provider for, or our tests are not covered by clinical patients’ insurance for, the majority of the tests that we perform for patients on behalf of clinicians. A~~pproximately 38% and 38% of our U.S. clinical tests for the three months ended March 31, 2020 and 2019, respectively, were for Medicare beneficiaries.~~

•

~~Regulatory approval.~~ Our Guardant360 test was the first comprehensive liquid biopsy test approved by NYSDOH. In addition, we believe our facility was the first comprehensive liquid biopsy laboratory to be CLIA-certified, CAP-accredited and NYSDOH-permitted. In the fourth quarter of 2019, we submitted a premarket approval, or PMA, application to seek the FDA’s approval of our Guardant360 test to be used as a companion diagnostic, initially

in connection with one therapeutic product of a biopharmaceutical customer, and to provide tumor mutation profiling for cancer patients with solid tumors. In February 2020, we submitted an additional module of the PMA application for our Guardant360 test to the FDA. Medicare’s National Coverage Determination for Next Generation Sequencing established in 2018 and subsequently updated in 2020 provides coverage for molecular diagnostic tests such as our Guardant360 test, if, among other criteria, such tests are offered within their FDA-approved companion diagnostic labeling. We believe that this establishes a competitive advantage for tests receiving FDA approval and that FDA approval will be ~~increasingly necessary for diagnostic tests to gain adoption, both in the United States and abroad. We believe FDA approval, if obtained, will help increase adoption of our tests andfacilitate favorable reimbursement decisions~~used by Medicare and commercial payers. We also intend to pursue regulatory approvals in specific markets outside of the United States, including in Europe, Japan and China. Any negative regulatory decisions or changes in regulatory requirements affecting our business could adversely impact our operations and financial results.third parties.

•

~~Payer coverage and reimbursement~~. Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payers, including both commercial and government payers. Payment from commercial payers can vary depending on whether we have entered into a contract with the payers as a “participating provider” or do not have a contract and are considered a “non-participating provider.” Payers often reimburse non-participating providers, if at all, at a lower amount than participating providers. We have received a substantial portion of our revenue from a limited number of commercial payers, most of which have not contracted with us to be a participating provider. We have received reimbursement for tests of patients with a variety of cancers, though for amounts that on average are significantly lower than for participating providers. We have experienced situations where commercial payers proactively reduced the amounts they were willing to reimburse for our tests, and in other situations, commercial payers have determined that the amounts they previously paid were too high and have sought to recover those perceived excess payments by deducting such amounts from payments otherwise being made. When we contract with a payer to serve as a participating provider, reimbursements by the payer are generally made pursuant to a negotiated fee schedule and are limited to only covered indications or where prior approval has been obtained. Becoming a participating provider can result in higher reimbursement amounts for covered uses of our test and, potentially, no reimbursement for non-covered uses identified under the payer’s policies or the contract. As a result, the potential for more favorable reimbursement associated with becoming a participating provider may be offset by a potential loss of reimbursement for non-covered uses of our tests. Current Procedural Terminology, or CPT, coding plays a significant role in how our Guardant360 test is reimbursed both from commercial and governmental payers. Changes to the codes used to report the Guardant360 test to payers may result in significant changes in its reimbursement. If our Guardant360 test receives approval from the FDA, we may be required to obtain a new code to report the Guardant360 test on claims submitted to U.S. payers. If a coding change were to occur, payments for certain uses of the Guardant360 test could be reduced or eliminated by such payers. Cigna, Priority Health, multiple Blue Cross Blue Shield plans as well as the health plans associated with eviCore adopted policies that cover our Guardant360 test for the majority of NSCLC patients we test. If their policies were to change in the future to cover additional cancer indications, we anticipate that our total reimbursement would increase. In September 2018, we began to submit claims to Medicare for reimbursement with respect to Guardant360 clinical tests performed for NSCLC patients covered under the 2018 Noridian LCD who meet certain clinical criteria, and in October 2018, we began to receive payments from Medicare~~for these clinical tests.~~ In March 2020, we began to receive reimbursement from Medicare for claims submitted, in accordance with the draft expanded LCD issued by Noridian, with respect to Guardant360 clinical tests performed for qualifying patients diagnosed with solid tumor cancers of non-central nervous system origin other than NSCLC. Because Noridian has not finalized the draft expanded LCD, we cannot guarantee that Medicare reimbursement for clinical tests of solid tumor cancers other than NSCLC will continue, especially after May 16, 2020, the deadline we believe for Noridian to finalize the draft expanded LCD. If such Medicare reimbursement for clinical tests of solid tumor cancers other than NSCLC is disrupted or reduced, it could have a material adverse impact on our business and results of operations. . We estimate total coverage in the United States for the Guardant360 test to be more than 170 million lives, including Medicare beneficiaries and members of several commercial health plans. If we fail to obtain or maintain coverage and adequate reimbursement from third-party payers, including from Medicare, we may be unable to increase our testing volume and revenue as expected. Retrospective reimbursement adjustments, such as deductions from further payments and clawbacks, can also negatively impact our revenue and cause our financial results to fluctuate. Due to the inherent variability of the insurance landscape, historic success of, and payments from, appeals of reimbursement denials by payers are not indicative of future success of and payments from such appeals.


•	~~Biopharmaceutical customers.~~ Our revenue also depends on our ability to attract new, and to maintain and expand relationships with existing, biopharmaceutical customers, and we expect to increase our sales and marketing expense in furtherance of this goal. As we continue to develop these relationships, we expect to support a growing

number of clinical trials both in the United States and internationally. If our relationships expand with biopharmaceutical customers, we believe we may continue to have opportunities to offer our platform to such customers for companion diagnostic development, novel target discovery and validation as well as clinical trial enrollment, and to grow into other business opportunities. For example, we believe that our genomic data, in combination with clinical outcomes or claims data, has revenue-generating potential, supporting novel drug development and companion diagnostic development.

•

~~Research and development.~~ A significant aspect of our business is our investment in research and development, including the development of new products, such as those being developed as part of our LUNAR program. In particular, we have invested heavily in clinical studies, including more than 50 clinical outcomes studies, the largest-ever liquid-to-tissue concordance study, and a prospective interventional clinical utility study demonstrating clinical overall response rates in line with tissue biopsy approaches. Our clinical research has resulted in over 150 peer-reviewed publications. With respect to our LUNAR program, we initiated a prospective screening study, which we refer to as the ECLIPSE trial, aiming to recruit approximately 10,000 patients and evaluate the performance of our LUNAR-2 assay in detecting colorectal cancer in average-risk adults, and in collaboration with a National Clinical Trials Network group, initiated a prospective multi-center randomized controlled trial, which we refer to as the COBRA study, in approximately 1,400 patients with resected stage II colon cancer to use our LUNAR-1 assay to evaluate recurrence-free survival in patients who receive ctDNA-directed therapy as compared to the current standard-of-care active surveillance. Furthermore, we are collaborating with investigators from multiple academic cancer centers, including MD Anderson Cancer Center, the University of Colorado, Memorial Sloan Kettering Cancer Center, Massachusetts General Cancer Center, Wake Forest Cancer Center and the University of California San Francisco, as well as several international institutions. The COVID-19 global pandemic has negatively impacted, and is expected to continue to negatively impact, the recruitment for clinical studies, especially those that are deemed as preventive care or are not part of a standard of care, including the ECLIPSE trial and the COBRA study. We believe these studies are critical to gaining physician adoption and driving favorable coverage decisions by payers, and expect our investments in clinical studies to increase. We expect to increase our research and development expense with the goal of fueling further innovation.

•

~~International expansion.~~ A component of our long-term growth strategy is to expand our commercial footprint internationally, and we expect to increase our sales and marketing expense to execute on this strategy. We currently offer our tests in countries outside the United States primarily through distributor relationships or direct contracts with hospitals. In May 2018, we formed and capitalized a joint venture, Guardant Health AMEA, Inc., which we refer to as the Joint Venture, with SoftBank, relating to the sale, marketing and distribution of our tests generally outside the Americas and Europe. We expect to rely on the Joint Venture to accelerate commercialization of our products in Asia, the Middle East and Africa, with our initial focus being on Japan. That effort could be negatively impacted by the COVID-19 global pandemic.

While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must address. See Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q, for more information.

Components of results of operations

Revenue

We derive our revenue from two sources: (i) precision oncology testing and (ii) development ~~services.~~services and other.

Precision oncology testing. Precision oncology testing revenue is generated from sales of our ~~Guardant 360 and GuardantOMNI~~ tests to clinical and biopharmaceutical customers. In the United States, through March 31, ~~2020,~~2021, we generally performed tests as an out-of-network service provider without contracts with health insurance companies. We submit claims for payment for tests performed for patients covered by U.S. private payers. We submit claims to Medicare for reimbursement for Guardant360 clinical testing performed for ~~NSCLC~~qualifying patients ~~covered under Medicare’s Molecular Diagnostic Services Program~~diagnosed with solid tumor cancers of non-central nervous system origin who meet ~~certain clinical criteria.~~the criteria of Medicare’s National Coverage Determination for Next Generation Sequencing established in March 2018. Tests for patients covered by Medicare represented approximately ~~38%~~35% and

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38% of U.S. tests ~~processed for~~performed during the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. We also provide precision oncology testing to biopharmaceutical customers under contracts for which all recognition criteria are met, and we have recognized revenue on an accrual basis for those services.

Development services and other. Development services and other revenue primarily represents services, other than precision oncology testing, that we provide to biopharmaceutical companies and large medical institutions. It includes companion diagnostic development and regulatory approval services, clinical trial setup, monitoring and maintenance, referrals, ~~and~~ liquid biopsy testing development and ~~support.~~support, as well as GuardantConnect, GuardantINFORM, Guardant-19, and kits fulfillment related revenues. We collaborate with biopharmaceutical companies in the development and clinical trials of new drugs. As part of these

collaborations, we provide services related to regulatory filings ~~with the FDA~~ to support companion diagnostic device submissions for our liquid biopsy panels. Under these arrangements, we generate revenue from progression of our collaboration efforts, as well as from provision of on-going support. Development services and other revenue can vary over time as different projects start and complete.

Costs and operating expenses

Cost of precision oncology testing. Cost of precision oncology testing generally consists of cost of materials, inventory write-downs, direct labor, including bonus, ~~benefit~~employee benefits and stock-based compensation; equipment and infrastructure expenses associated with processing liquid biopsy test samples, including sample accessioning, library preparation, sequencing, quality control analyses and shipping charges to transport blood samples; freight; curation of test results for physicians; and license fees due to third parties. Infrastructure expenses include depreciation of laboratory equipment, rent costs, ~~amortization~~depreciation of leasehold improvements and information technology costs. Costs associated with performing our tests are recorded as the tests are performed regardless of whether revenue was recognized with respect to the tests. Royalties for licensed technology are calculated as a percentage of revenues generated using the associated technology and recorded as expense at the time the related revenue is recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the patents. While we do not believe the technologies underlying these licenses are necessary to permit us to provide our tests, we do believe these technologies are potentially valuable and of possible strategic importance to us or our competitors.

We expect the cost of precision oncology testing to generally increase in line with the increase in the number of tests we perform, but the cost per test to decrease modestly over time due to the efficiencies we may gain as test volume increases, and from automation and other cost reductions.

Cost of development services and other. Cost of development services and other primarily includes costs incurred for the performance of development services requested by our ~~customers.~~customers comprising of direct labor and material costs including any inventory write-downs. For development of new products, costs incurred before technological feasibility has been achieved are reported as research and development expenses, while costs incurred thereafter are reported as cost of revenue. Cost of development services and other will vary depending on the nature, timing and scope of customer projects.

Research and development expense. Research and development expenses consist of costs incurred to develop technology and include salaries and benefits including stock-based compensation, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, other outside costs and costs to develop our technology capabilities. Research and development expenses also include costs related to activities performed under contracts with biopharmaceutical companies before technological feasibility has been achieved. Research and development costs are expensed as incurred. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Costs to develop our technology capabilities are recorded as research and development unless they meet the criteria to be capitalized as internal-use software costs.

We expect that our research and development expenses will continue to increase in absolute dollars as we continue to innovate and develop additional products, expand our genomic and medical data management resources and conduct our ongoing and new clinical ~~trials with a particular focus on our LUNAR program.~~trials.

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Sales and marketing expense. Our sales and marketing expenses are expensed as incurred and include costs associated with our sales organization, including our direct sales force and sales management, client services, marketing and reimbursement, medical affairs, as well as business development personnel who are focused on our biopharmaceutical customers. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, travel expenses and stock-based compensation, as well as marketing, sales incentives, and educational activities and allocated overhead expenses.

We expect our sales and marketing expenses to increase in absolute dollars as we expand our sales force, increase our presence within and outside of the United States, and increase our marketing activities to drive further awareness and adoption of our ~~Guardant360 and GuardantOMNI~~ tests.

General and administrative expense. Our general and administrative expenses include costs for our executive, accounting and finance, information technology, legal and human resources functions. These expenses consist principally of salaries, bonuses, employee benefits, travel expenses and stock-based compensation, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs and allocated overhead expenses.

We expect that our general and administrative expenses will continue to increase in absolute dollars, primarily due to increased ~~headcount~~stock-based compensation expense, including resulting from the market-based restricted stock units granted to our Chief Executive Officer and ~~costs associated with operating as a public company, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing~~our President and ~~requirements of the SEC, director and officer insurance premiums and investor relations.~~Chief Operating Officer in May 2020. These expenses, though expected to increase in absolute dollars, are expected

to decrease modestly as a percentage of revenue in the long term, though they may fluctuate as a percentage of revenue from period to period due to the timing and extent of these expenses being incurred.

Interest income

Interest income consists of interest earned on our cash, cash equivalents and marketable securities.

Interest expense

Interest expense consists primarily of ~~interest from finance leases or capital leases and royalty obligations.~~charges relating to amortization of debt issuance costs.

Other income (expense), net

Other income (expense), net ~~also~~ consists of foreign currency exchange gains and ~~losses.~~losses, payments due and received in relation to the settlement of a patent dispute, net of credit losses, and the relief fund grant from the Department of Health and Human Services, or HHS, under the U.S. Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

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Results of operations

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


	Three Months Ended March 31,
		2021		2020

		(unaudited)
		(in thousands)
Revenue:
Precision oncology testing		$	63,729	$	60,246
Development services and other		14,936		7,264
Total revenue		78,665		67,510
Costs and operating expenses:
Cost of precision oncology testing(1)		23,590		18,191
Cost of development services and other		5,157		2,315
Research and development expense(1)		55,508		37,016
Sales and marketing expense(1)		34,338		25,115
General and administrative expense(1)		67,935		19,785
Total costs and operating expenses		186,528		102,422
Loss from operations		(107,863)		(34,912)
Interest income		1,551		3,318
Interest expense		(646)		(12)
Other income (expense), net		(290)		(209)
Loss before provision for income taxes		(107,248)		(31,815)
Provision for (benefit from) income taxes		110		14
Net loss		$	(107,358)	$	(31,829)

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


	Three Months Ended March 31,
		2021		2020

		(unaudited)
		(in thousands)
Cost of precision oncology testing		$	767	$	303
Research and development expense		4,300		2,364
Sales and marketing expense		2,880		1,798
General and administrative expense		47,122		1,873
Total stock-based compensation expense		$	55,069	$	6,338

Three Months Ended
March 31,
2020 2019

(unaudited)
(in thousands)
Revenue:
Precision oncology testing $ 60,246
$ 28,837
Development services 7,264
7,818
Total revenue 67,510
36,655
Costs and operating expenses:
Cost of precision oncology testing⁽¹⁾
18,191
11,023
Cost of development services 2,315
2,512
Research and development expense⁽¹⁾
37,016
16,316
Sales and marketing expense⁽¹⁾
25,115
17,807
General and administrative expense⁽¹⁾
19,785
12,661
Total costs and operating expenses 102,422
60,319
Loss from operations (34,912 ) (23,664 )
Interest income 3,318
2,485
Interest expense (12 ) (293 )
Other income (expense), net (209 ) 147
Loss before provision for income taxes (31,815 ) (21,325 )
Provision for income taxes 14
26
Net loss $ (31,829 ) $ (21,351 )


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

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Three Months Ended March 31,
2020 2019

(unaudited)
(in thousands)
Cost of precision oncology testing $ 303
$ 170
Research and development expense 2,364
1,210
Sales and marketing expense 1,798
826
General and administrative expense 1,873
976
Total stock-based compensation expense $ 6,338
$ 3,182

Comparison of the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020

Revenue


	Three Months Ended March 31,				Change						Three Months Ended March 31,				Change
	2020		2019		$			%			2021		2020		$		%

	(unaudited)										(unaudited)
	(in thousands)										(in thousands)
Precision oncology testing	$	60,246	$	28,837	$	31,409		109	%	Precision oncology testing	$	63,729	$	60,246	$	3,483	6	%
Development services	7,264		7,818		(554		)	(7	)%
Development services and other										Development services and other	14,936		7,264		7,672		106	%
Total revenue	$	67,510	$	36,655	$	30,855		84	%	Total revenue	$	78,665	$	67,510	$	11,155	17	%

Precision oncology testing revenue increased to ~~$36.7~~$63.7 million for the three months ended March 31, ~~2019, an increase of $30.9 million, or 84%.~~

~~Precision oncology testing revenue increased to~~2021 from $60.2 million for the three months ended March 31, 2020, ~~from $28.8 million for the three months ended March 31, 2019,~~ an increase of ~~$31.4~~$3.5 million, or ~~109%~~6%. This increase in precision oncology testing revenue was ~~primarily~~ due to an increase in ~~tests processed as well as increase in average selling price per test.~~sample volume. Precision oncology revenue from tests for clinical customers was $49.8 million in the three months ended March 31, 2021 and $38.0 million in the three months ended March 31, 2020, ~~and $17.1 million in~~respectively. Tests for clinical customers increased to 18,390 for the three months ended March 31, ~~2019, respectively. Tests for clinical customers increased to~~2021 from 15,257 for the three months ended March 31, 2020 ~~from 9,521 for the three months ended March 31, 2019~~ mainly due to an increase in the number of physicians ordering Guardant360 tests. In March 2020, we began to receive reimbursement from Medicare for claims submitted ~~in accordance with the draft expanded LCD issued by Noridian in May 2019,~~ with respect to Guardant360 clinical tests performed forqualifying patients diagnosed with solid tumor cancers of non-central nervous system origin other than NSCLC. ~~Commencement of Medicare reimbursement for clinical tests of solid tumor cancers other than NSCLC was the main driver of the increase in average selling price per clinical testfor the~~ ~~three months ended March 31, 2019. Medicare reimbursement for clinical tests of solid tumor cancers other than NSCLC could be disrupted if Noridian does not finalize their expanded draft LCD.~~

Precision oncology revenue from tests for biopharmaceutical customers was $13.9 million in the three months ended March 31, 2021 and $22.3 million in the three months ended March 31, 2020, ~~and $11.7 million in~~respectively. Tests for biopharmaceutical customers decreased to 3,522 for the three months ended March 31, ~~2019, respectively. Tests for biopharmaceutical customers increased to~~2021 from 5,266 for the three months ended March 31, 2020 ~~from 3,762 for the three months ended March 31, 2019~~primarily due to ~~an increase~~the timing and progression of clinical trials and studies which resulted in fluctuation in the number of ~~biopharmaceutical customers and their contracted projects. The average selling price of biopharmaceutical tests was $4,230~~samples received for the three months ended March 31, 2020, up from $3,109 for the three months ended March 31, 2019 due to a greater number of such tests being the GuardantOMNI test, which has a higher selling price than the Guardant360 test.testing. As a result of the COVID-19 pandemic, beginning in the latter half of March 2020, we ~~have been~~began receiving fewer samples for testing on a daily average basis from our clinical and biopharmaceutical customers than before the outbreak of the COVID-19 pandemic. Our future sample volumes and precision oncology revenue may be adversely impacted by the COVID-19 pandemic depending on the duration and severity of the pandemic.

Development services and other revenue increased to $14.9 million for the ~~affected periods.~~

~~Development services revenue decreased to~~three months ended March 31, 2021 from $7.3 million for the three months ended March 31, 2020, ~~from $7.8 million for the three months ended March 31, 2019, a decrease~~an increase of ~~$0.6~~$7.7 million, or 7%106%. This ~~decrease~~increase in development services and other revenue was primarily due to ~~a slower progression in~~new collaboration projects from biopharmaceutical customers for companion diagnostic development and regulatory approval services during the three months ended March 31, ~~2020. We expect our~~2021. Our development services arrangements with biopharmaceutical customers and development services revenue tomay be adversely impacted by the COVID-19 pandemic ~~for the affected~~in future periods.

Costs and operating expenses

Cost of precision oncology testing revenue was $23.6 million for the three months ended March 31, ~~2019, an increase of $7.0 million, or 52%.~~

~~Cost of precision oncology testing revenue was~~2021 compared to $18.2 million for the three months ended March 31, 2020, ~~compared to $11.0 million for the three months ended March 31, 2019,~~ an increase of ~~$7.2~~$5.4 million, or ~~65%~~30%. This increase in cost of precision oncology testing was ~~attributable to an increase in sample volumes and was~~ primarily due to a ~~$3.8 million increase in production labor and overhead costs and a $3.2~~$2.8 million increase in material ~~costs.~~costs, $1.7 million


	Three Months Ended March 31,							Three Months Ended March 31,
	2020			2019					2021		2020

Net loss	$	(31,829	)	$	(21,351	)	Net loss		$	(107,358)	$	(31,829)
Other comprehensive income, net of tax impact:
Unrealized gain on available-for-sale securities	6,571			485
Other comprehensive income (loss), net of tax impact:							Other comprehensive income (loss), net of tax impact:
Unrealized gain (loss) on available-for-sale securities							Unrealized gain (loss) on available-for-sale securities		(706)		6,571
Foreign currency translation adjustments	23			(69		)	Foreign currency translation adjustments		(1,087)		23
Other comprehensive income	6,594			416
Other comprehensive income (loss)							Other comprehensive income (loss)		(1,793)		6,594
Comprehensive loss	$	(25,235	)	$	(20,935	)	Comprehensive loss		$	(109,151)	$	(25,235)
Comprehensive gain (loss) attributable to redeemable noncontrolling interest	4,100			(4,700		)
Comprehensive income (loss) attributable to redeemable noncontrolling interest							Comprehensive income (loss) attributable to redeemable noncontrolling interest		(2,300)		4,100
Comprehensive loss attributable to Guardant Health, Inc.	$	(21,135	)	$	(25,635	)	Comprehensive loss attributable to Guardant Health, Inc.		$	(111,451)	$	(21,135)



	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	152,239		$	143,228
Short-term marketable securities	367,853			379,574
Accounts receivable, net	48,015			47,986
Inventory	25,148			15,181
Prepaid expenses and other current assets	14,137			11,389
Total current assets	607,392			597,358
Long-term marketable securities	238,206			268,783
Property and equipment, net	46,685			43,668
Right-of-use assets	30,132			29,140
Intangible assets, net	17,681			8,524
Goodwill	3,290			3,290
Capitalized license fees	60			6,890
Other assets	4,721			4,882
Total Assets⁽¹⁾	$	948,167		$	962,535
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,378		$	16,197
Accrued compensation	22,935			18,557
Accrued expenses	23,073			25,703
Deferred revenue	11,936			12,277
Total current liabilities	82,322			72,734
Long-term operating lease liabilities	33,773			33,256
Obligation related to royalty	—			6,880
Other long-term liabilities	1,459			1,672
Total Liabilities⁽¹⁾	117,554			114,542
Redeemable noncontrolling interest	45,500			49,600
Stockholders’ equity:
Common stock, par value of $0.00001 per share; 350,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 94,509,011 and 94,261,414 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	1			1
Additional paid-in capital	1,157,945			1,150,090
Accumulated other comprehensive income	7,705			1,111
Accumulated deficit	(380,538		)	(352,809		)
Total Stockholders’ Equity	785,113			798,393
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity	$	948,167		$	962,535


																		Three Months Ended March 31, 2020
	Redeemable Noncontrolling Interest		Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity				Redeemable Noncontrolling Interest				Common Stock						Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders’ Equity
			Shares	Amount																Shares			Amount
Balance as of December 31, 2018	$	41,800	85,832,454	$	1	$	764,033	$	(83	)	$	(280,799	)	$	483,152
Cumulative effect adjustment for Topic 606 adoption	—		—	—		—		—			4,907			4,907
Cumulative effect adjustment for ASU 2018-07 adoption	—		—	—		1,266		—			(1,266		)	—
Balance as of December 31, 2019																	Balance as of December 31, 2019			$	49,600		94,261,414			$	1			$	1,150,090			$	1,111			$	(352,809)			$	798,393

Issuance of common stock upon exercise of stock options	—		146,318	—		538		—			—			538			Issuance of common stock upon exercise of stock options	—				242,003		—				1,504				—				—				1,504
Vesting of restricted stock units																	Vesting of restricted stock units	—				5,594		—				—				—				—				—
Vesting of common stock exercised early	—		—	—		56		—			—			56			Vesting of common stock exercised early	—				—		—				13				—				—				13
Common stock issued under employee stock purchase plan	—		119,702	—		1,933		—			—			1,933

Stock-based compensation	—		—	—		3,183		—			—			3,183			Stock-based compensation	—				—		—				6,338				—				—				6,338
Adjustment of redeemable noncontrolling interest	4,700		—	—		—		—			(4,700		)	(4,700		)	Adjustment of redeemable noncontrolling interest	(4,100)				—		—				—				—				4,100				4,100
Other comprehensive gain, net of tax impact	—		—	—		—		416			—			416			Other comprehensive gain, net of tax impact	—				—		—				—				6,594				—				6,594
Net loss	—		—	—		—		—			(21,351		)	(21,351		)	Net loss	—				—		—				—				—				(31,829)				(31,829)
Balance as of March 31, 2019	$	46,500	86,098,474	$	1	$	771,009	$	333		$	(303,209	)	$	468,134

Balance as of March 31, 2020																	Balance as of March 31, 2020	$	45,500			94,509,011		$	1			$	1,157,945			$	7,705			$	(380,538)			$	785,113



Cash and cash equivalents—Beginning of period	143,228		140,544
Cash and cash equivalents—End of period	$	152,239	$	153,789
Supplemental Disclosures of Cash Flow Information:
Operating lease liabilities arising from obtaining right-of-use assets	$	1,957	$	—
Supplemental Disclosures of Noncash Investing and Financing Activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	1,365	$	490



	Amount
	(in thousands)
Cash	$	521
Identified intangible assets	6,700
Goodwill	3,289
Net liabilities assumed	(1,802		)
Total	$	8,708



	Fair Value		Estimated Useful Life
	(in thousands)
Acquired license	$	5,100	10 years
IPR&D	1,600		*
Total	$	6,700



Year Ending December 31,
	(in thousands)
Remainder of 2020	$	5,775
2021	7,977
2022	8,145
2023	8,750
2024	8,942
2025 and thereafter	12,651
Total operating lease payments	$	52,240
Less: Imputed Interest	(11,160		)
Total operating lease liabilities	$	41,080


		GUARDANT HEALTH, INC.

Dated:	May 6, 2021	~~GUARDANT HEALTH, INC.~~By:	/s/ Helmy Eltoukhy
		Name:	Helmy Eltoukhy
~~Dated:~~	~~May 7, 2020~~	~~By:~~Title:	~~/s/ Derek Bertocci~~ Chief Executive Officer and Director (Principal Executive Officer)
		~~Name:~~	~~Derek Bertocci~~
Dated:	May 6, 2021	~~Title:~~By:	/s/ Michael Bell
		Name:	Michael Bell
		Title:	Chief Financial Officer (Principal Accounting Officer and Principal Financial ~~and Accounting~~ Officer)


1.	~~Description of Business~~


*	~~less than 10%~~