Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. There have been no changes to the Company's significant accounting policies described in the audited consolidated financial statements for the year ended March 31, 2021 , that have had a material impact on these condensed consolidated financial statements and related notes. Unaudited Interim Condensed Consolidated Financial Information The accompanying interim condensed consolidated financial statements as of September 30, 2021 and for the three and six months ended September 30, 2021 and 2020 and accompanying notes, are unaudited. These unaudited interim condensed consolidated financial statements (the "condensed consolidated financial statements") have been prepared in accordance with GAAP applicable to interim financial statements. These financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. As such, the information included herein should be read in conjunction with the consolidated financial statements and accompanying notes as of and for the year ended March 31, 2021 (the “audited consolidated financial statements”) that was included in the Company’s Current Report on Form 8-K filed with the SEC on June 21, 2021. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of September 30, 2021 and its condensed consolidated results of operations and cash flows for the three and six months ended September 30, 2021 and 2020. The results of operations for the three and six months ended September 30, 2021 are not necessarily indicative of the results expected for the year ending March 31, 2022 or any other future interim or annual periods. As a result of the Merger, prior period share and per share amounts presented in the accompanying condensed consolidated financial statements and these related notes have been retroactively converted. Fiscal Year The Company’s fiscal year ends on March 31. References to fiscal year 2022 and 2021, refer to the fiscal years ending and ended March 31, 2022 and 2021, respectively. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period and the accompanying notes. Significant items subject to such estimates and assumptions include, but are not limited to the determination of standalone selling price for various performance obligations; the estimated expected benefit period for the rate and recognition pattern of breakage revenue for purchases where a saliva collection kit (“Kit”) is never returned for processing; the fair value of financial assets and liabilities; the capitalization and estimated useful life of internal use software; the useful life of long-lived assets; the timing and costs associated with asset retirement obligations; the incremental borrowing rate for operating leases; the fair value of private warrants; stock-based compensation including the determination of the fair value of the Company’s common stock and stock options prior to the Closing Date; and the valuation of deferred tax assets and uncertain tax positions. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from these estimates, and such differences could be material to the condensed consolidated financial statements. The coronavirus (“COVID-19”) pandemic has created significant global economic uncertainty and resulted in the slowdown of economic activity. COVID-19 has disrupted the Company’s general business operations since March 2020 and the Company expects that such disruption will continue for an unknown period. As the Company continues to closely monitor the COVID-19 pandemic, its top priority remains protecting the health and safety of the Company’s employees. Safety guidelines and procedures, including social distancing and enhanced cleaning, have been developed for on-site employees and these policies are regularly monitored. The Company is not aware of any specific event or circumstance that would require revisions to estimates, updates to judgments, or adjustments to the carrying value of assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the condensed consolidated financial statements. Concentration of Supplier Risk Certain of the raw materials, components and equipment associated with the deoxyribonucleic acid (“DNA”) microarrays and Kits used by the Company in the delivery of its services are available only from third-party suppliers. The Company also relies on a third-party laboratory service for the processing of its customer samples. Shortages and slowdowns could occur in these essential materials, components, equipment, and laboratory services due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain materials, components, equipment, or laboratory services at acceptable prices, it would be required to reduce its laboratory operations, which could have a material adverse effect on its results of operations. A single supplier accounted for 100 % of the Company’s total purchases of microarrays and a separate single supplier accounted for 100 % of the Company’s total purchases of Kits for the three and six months ended September 30, 2021 and 2020. One laboratory service provider accounted for 100 % of the Company’s processing of customer samples for the three and six months ended September 30, 2021 and 2020. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk include cash and accounts receivable. The Company maintains its cash with high-quality financial institutions in the United States, the composition and maturities of which are regularly monitored by the Company. The Company’s revenue and accounts receivable are derived primarily from the United States. See Revenue Recognition within Note 2, “ Summary of Significant Accounting Policies, ” for additional information regarding geographical disaggregation of revenue. The Company grants credit to its customers in the normal course of business, performs ongoing credit evaluations of its customers, and does not require collateral. The Company regularly monitors the aging of accounts receivable balances. Significant customer information is as follows: September 30, March 31, 2021 2021 Percentage of accounts receivable: Customer B 94 % 0 % Customer C 5 % 35 % Customer D 0 % 40 % Three Months Ended September 30, Six Months Ended September 30, 2021 2020 2021 2020 Percentage of revenue: Customer C 27 % 13 % 20 % 13 % Customer B 18 % 19 % 19 % 22 % Revenue Recognition The Company generates revenue from its Consumer & Research Services segment, which includes revenue from PGS and research services, and its Therapeutics segment. In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration that the Company expects to receive in exchange for these goods or services. The Company sells through multiple channels, including direct to consumer via the Company’s website and through online retailers. If the customer does not return the Kit, services cannot be completed by the Company, potentially resulting in unexercised rights (“breakage”) revenue. To estimate breakage, the Company applies the practical expedient available under ASC 606 to assess its customer contracts on a portfolio basis as opposed to individual customer contracts, due to the similarity of customer characteristics, at the sales channel level. The Company recognizes the breakage amounts as revenue, proportionate to the pattern of revenue recognition of the returning kits in these respective sales channel portfolios. The Company estimates breakage for the portion of Kits not expected to be returned using an analysis of historical data and considers other factors that could influence customer Kit return behavior. The Company updates its breakage rate estimate periodically and, if necessary, adjusts the deferred revenue balance accordingly. If actual return patterns vary from the estimate, actual breakage revenue may differ from the amounts recorded. The Company recognized breakage revenue from unreturned Kits of $ 4.1 million and $ 4.0 million for the three months ended September 30, 2021 and 2020, respectively, and $ 8.6 million and $ 8.5 million for the six months ended September 30, 2021 and 2020, respectively. Fees paid to certain sales channel partners include, in part, compensation for obtaining PGS contracts. Such contracts have an amortization period of one year or less, and the Company has applied the practical expedient to recognize these costs as sales and marketing expenses when incurred. These costs were $ 0.8 million and $ 1.3 million for the three months ended September 30, 2021 and 2020, respectively, and $ 3.9 million and $ 2.0 million for the six months ended September 30, 2021 and 2020, respectively. Disaggregation of Revenue The following table presents revenue by category: Three Months Ended September 30, Six Months Ended September 30, 2021 2020 2021 2020 Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue (in thousands, except percentages) (in thousands, except percentages) Consumer services $ 44,488 81 % $ 40,556 78 % $ 92,338 81 % $ 75,287 75 % Research services 10,716 19 % 11,248 22 % 22,105 19 % 24,526 25 % Therapeutics — 0 % — 0 % — 0 % 48 0 % Total $ 55,204 100 % $ 51,804 100 % $ 114,443 100 % $ 99,861 100 % Within the Consumer and Research Services segment, substantially all consumer services revenue is recognized at the point in time of the initial transfer of reports to the consumer, and substantially all research services revenue is recognized over time as services are performed. Substantially all Therapeutics revenue is recognized at the point in time intellectual property is transferred. The following table summarizes revenue by region based on the shipping address of customers or the location where the services are delivered: Three Months Ended September 30, Six Months Ended September 30, 2021 2020 2021 2020 Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue (in thousands, except percentages) (in thousands, except percentages) United States $ 38,613 70 % $ 36,068 70 % $ 78,965 69 % $ 68,428 69 % United Kingdom 12,335 22 % 11,766 23 % 26,240 23 % 24,982 25 % Canada 2,748 5 % 2,339 4 % 5,988 5 % 3,948 4 % Other regions 1,508 3 % 1,631 3 % 3,250 3 % 2,503 2 % International 16,591 30 % 15,736 30 % 35,478 31 % 31,433 31 % Total $ 55,204 100 % $ 51,804 100 % $ 114,443 100 % $ 99,861 100 % Contract Balances Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts associated with contractual rights related to consideration for performance obligations not yet billed and are included in prepaid expenses and other current assets in the condensed consolidated balance sheets. The amount of contract assets was immaterial as of September 30, 2021 and March 31, 2021. Contract liabilities consist of deferred revenue. Revenue is deferred when the Company invoices in advance of fulfilling performance obligations under a contract. Deferred revenue primarily relates to Kits that have been shipped to consumers and non-consigned retail sites but not yet returned for processing by the consumer, as well as research services billed in advance of performance. Deferred revenue is recognized when the obligation to deliver results to the customer is satisfied and when research services are ultimately performed. As of September 30, 2021 , deferred revenue for consumer services was $ 32.5 million. Of the $ 39.3 million of deferred revenue for consumer services as of March 31, 2021 , the Company recognized $ 6.4 million and $ 32.0 million as revenue during the three and six months ended September 30, 2021, respectively. As of September 30, 2021 , deferred revenue for research services was $ 35.2 million, including related party deferred revenue amounts of $ 33.9 million. Of the $ 31.9 million of deferred revenue for research services as of March 31, 2021 , the Company recognized $ 10.7 million and $ 22.1 million as revenue during the three and six months ended September 30, 2021 , respectively, of which related party revenue amounts were $ 10.0 million and $ 21.2 million, respectively. Remaining Performance Obligations The transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that are expected to be billed and recognized as revenue in future periods. The Company has utilized the practical expedient available under ASC 606 to not disclose the value of unsatisfied performance obligations for PGS as those contracts have an expected length of one year or less. As of September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations for research services was $ 39.9 million. This amount is expected to be recognized over a remaining subsequent period of approximately 1 to 2 years from the reporting date. Stock-Based Compensation Stock-based compensation expense related to stock-based awards for employees and non-employees is recognized based on the fair value of the awards granted. The fair value of each stock-based award is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the expected term of the stock-based award, the expected volatility of the price of the Company’s common stock, risk-free interest rates, and the expected dividend yield of common stock. The fair value of each restricted stock unit (“RSU”) is estimated based on the fair value of the common stock on the grant date. Prior to the Merger, the Company determined the fair value of its common stock for financial reporting as of each grant date based on numerous objective and subjective factors and management’s judgement. Subsequent to the Merger, the Company determines the fair value using the market closing price of its common stock on the date of grant. The related stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, including awards with graded vesting and no additional conditions for vesting other than service conditions. The Company accounts for forfeitures as they occur. Warrant Liabilities The Company classifies the Private Placement Warrants and the Public Warrants (both defined and discussed in Note 10, " Common Stock and Warrants " and, collectively, the "Warrants") as liabilities. At the end of each reporting period, changes in fair value during the period are recognized as change in fair value of warrant liabilities within the condensed consolidated statements of operations and comprehensive loss. The Company will continue to adjust the warrant liability for changes in the fair value until the earlier of (a) the exercise or expiration of the Warrants or (b) the redemption of the Warrants, at which time the Warrants will be reclassified to additional paid-in capital. Segment Information The Company currently operates in two reporting segments: Consumer & Research Services and Therapeutics. The Consumer & Research Services segment consists of revenue and expenses from PGS, as well as research services revenue and expenses from certain collaboration agreements (including the GSK Agreement (as defined below)). The Therapeutics segment consists of revenues from the out-licensing of intellectual property associated with identified drug targets and expenses related to therapeutic product candidates under clinical development. Substantially all of the Company’s revenues are derived from the Consumer & Research Services segment. See Note 2, “ Summary of Significant Accounting Policies, ” for additional information regarding revenue. There are no inter-segment sales. Certain expenses such as Finance, Legal, Regulatory and Supplier Quality, and CEO Office are not reported as part of the reporting segments as reviewed by the CODM (as defined below). These amounts are included in Unallocated Corporate in the reconciliations below. The chief operating decision-maker (“CODM”) is the Chief Executive Officer (“CEO”). The CODM evaluates the performance of each segment based on Adjusted EBITDA. Adjusted EBITDA is defined as net income before net interest expense (income), net other expense (income), changes in fair value of warrant liabilities, depreciation and amortization of fixed assets, amortization of internal use software, non-cash stock-based compensation expense, acquisition-related costs, and expenses related to restructuring and other charges, if applicable for the period. Adjusted EBITDA is a key measure used by the Company's management and Board of Directors to understand and evaluate the Company's operating performance and trends, to prepare and approve the annual budget, and to develop short- and long-term operating plans. In particular, the exclusion of the items eliminated in calculating Adjusted EBITDA provides useful measures for period-to-period comparisons of the Company's business. Accordingly, Adjusted EBITDA provides useful information in understanding and evaluating the Company's operating results in the same manner as management and the Board of Directors. Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. Other companies, including companies in the Company's industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of Adjusted EBITDA as a tool for comparison. There are a number of limitations related to the use of these non-GAAP financial measures rather than net loss, which is the most directly comparable financial measure calculated in accordance with GAAP. Some of the limitations of Adjusted EBITDA include (i) Adjusted EBITDA does not properly reflect capital commitments to be paid in the future, and (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures. In evaluating Adjusted EBITDA, the Company will incur expenses similar to the adjustments in this presentation in the future. The presentation of Adjusted EBITDA should not be construed as an inference that the Company's future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating the Company's performance, Adjusted EBITDA should be considered alongside other financial performance measures, including net loss and other GAAP results. The Company’s revenue and Adjusted EBITDA by segment is as follows: Three Months Ended Six Months Ended 2021 2020 2021 2020 (in thousands) (in thousands) Segment Revenue Consumer and Research Services $ 55,204 $ 51,804 $ 114,443 $ 99,813 Therapeutics — — — 48 Total Revenue $ 55,204 $ 51,804 $ 114,443 $ 99,861 Segment Adjusted EBITDA Consumer and Research Services Adjusted EBITDA $ ( 760 ) $ 1,778 $ ( 1,265 ) $ ( 2,458 ) Therapeutics Adjusted EBITDA ( 18,828 ) ( 14,440 ) ( 37,131 ) ( 23,835 ) Unallocated Corporate ( 10,095 ) ( 7,558 ) ( 18,563 ) ( 13,757 ) Total Adjusted EBITDA $ ( 29,683 ) $ ( 20,220 ) $ ( 56,959 ) $ ( 40,050 ) Reconciliation of net loss to Adjusted EBITDA Net Loss $ ( 16,524 ) $ ( 36,191 ) $ ( 58,550 ) $ ( 71,961 ) Adjustments Interest (income), net ( 92 ) ( 69 ) ( 136 ) ( 143 ) Other (income) / expense, net ( 3 ) 6 ( 17 ) ( 872 ) Change in fair value of warrant liabilities ( 29,828 ) — ( 29,294 ) — Depreciation and amortization 4,871 5,168 9,508 10,699 Stock-based compensation expense 10,427 10,866 20,064 22,227 Acquisition-related costs (1) 1,466 — 1,466 — Total Adjusted EBITDA $ ( 29,683 ) $ ( 20,220 ) $ ( 56,959 ) $ ( 40,050 ) (1) For the three and six months ended September 30, 2021, acquisition-related costs primarily consisted of advisory, legal and consulting fees. Customers accounting for 10% or more of segment revenues were as follows: Three Months Ended Six Months Ended 2021 2020 2021 2020 (in thousands, except percentages) (in thousands, except percentages) Consumer and Research Services Segment Revenue: Customer C (1) $ 14,935 27 % $ 6,840 13 % $ 23,447 20 % $ 13,064 13 % Customer B (2) $ 10,002 18 % $ 9,840 19 % $ 21,212 19 % $ 21,667 22 % Therapeutics Segment Revenue: Customer E (2) $ — 0 % $ — 0 % $ — 0 % $ 48 100 % (1) Customer C revenues are primarily in the United States. (2) Customer B revenues are in the United Kingdom and Customer E is in a region other than the United States, United Kingdom or Canada. Revenue by geographical region can be found in the revenue recognition disclosures in Note 2, “ Summary of Significant Accounting Policies. ” All of the Company’s property and equipment, net of depreciation and amortization, was located in the United States during the periods presented. The reporting segments do not present total assets as they are not reviewed by the CODM when evaluating their performance. Recently Adopted Accounting Pronouncements As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election and no new accounting pronouncements were adopted during the period. Recently Issued Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company beginning April 1, 2023, and interim periods therein. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2016-13 will have on its condensed consolidated financial statements and related disclosures. In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity, and clarifies the guidance on the computation of earnings per share for those financial instruments. The guidance will be effective for the Company beginning April 1, 2022, and interim periods therein. Early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the effect that ASU 2020-06 will have on its condensed consolidated financial statements and related disclosures and does not believe the adoption will have a material impact. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for the Company beginning April 1, 2023, and interim periods therein. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating the effect that ASU 2021-08 will have on its condensed consolidated financial statements and related disclosures. |