CASTLE BIOSCIENCES INC Management report and analysis of the financial situation and operating results. (Form 10-Q)

You should read the following discussion and analysis of financial condition and
results of operations together with our unaudited condensed consolidated
financial statements and the related notes and other financial information
included in this Quarterly Report on Form 10-Q and our audited financial
statements and notes thereto as of and for the years ended December 31, 2021 and
2020 and the related Management's Discussion and Analysis of Financial Condition
and Results of Operations, including the section entitled "Critical Accounting
Estimates," included in our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the Securities and Exchange Commission (the "SEC")
on February 28, 2022. Unless the context requires otherwise, references in this
Quarterly Report on Form 10-Q to "we," "us" and "our" refer to Castle
Biosciences, Inc.

Forward-looking statements

The information in this discussion contains forward-looking statements and
information within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which are subject to the "safe harbor"
created by those sections. These forward-looking statements include, but are not
limited to, statements concerning the impacts of COVID-19 on our business, our
strategy, future operations, future financial position, future revenues,
projected costs, prospects and plans and objectives of management. The words
"anticipate," "believe," "estimate," "expect," "potential," "may," "plan,"
"will," "would" or the negative or plural of these terms or other similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We may not
actually achieve the plans, intentions or expectations disclosed in our
forward-looking statements and you should not place undue reliance on our
forward-looking statements. Actual results or events could differ materially
from the plans, intentions or expectations disclosed in the forward-looking
statements that we make. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially from
those in the forward-looking statements, including, without limitation, the
risks set forth in Part II, Item 1A., "Risk Factors" in this Quarterly Report on
Form 10-Q and in our other filings with the SEC. The forward-looking statements
are applicable only as of the date on which they are made, and we do not assume
any obligation to update any forward-looking statements, except as may be
required by law.

Insight

Castle Biosciences is improving health through innovative tests that guide
patient care. For the diseases that our portfolio of tests cover, we believe the
traditional approach to developing a treatment plan for cancers and other
diseases using clinical and pathology factors alone is inadequate and can be
improved by incorporating the personalized information our diagnostic and
prognostic tests provide.

We currently market five proprietary multi-analyte assays with algorithmic
analysis ("MAAAs") designed to answer clinical questions in dermatologic
cancers, uveal melanoma ("UM") (a rare cancer of the eye) and Barrett's
esophagus ("BE"). We also have a pharmacogenomic test to guide optimal drug
treatment for patients suffering from depression, anxiety and other mental
health conditions following our acquisition of AltheaDx, Inc. ("AltheaDx") in
April 2022, as discussed below. Our revenue is primarily generated by our
DecisionDx®-Melanoma risk stratification test for cutaneous melanoma, a deadly
skin cancer, and our DecisionDx®-UM risk stratification test for UM.

The foundation of our business is our dermatologic cancer franchise, and our
lead product is DecisionDx-Melanoma, a proprietary risk stratification gene
expression profile ("GEP") test that predicts the risk of metastasis or
recurrence for patients diagnosed with invasive cutaneous melanoma. In the
management of melanoma, as with nearly all diseases, treatment plans are
directed by patient risk-stratification. This test has two distinct,
complementary clinically actionable uses. The first revolves around predicting
the likelihood of having a sentinel lymph node ("SLN") negative biopsy result so
that physicians and patients can discuss the risk and benefit of undergoing the
SLN biopsy ("SLNB") surgical procedure. The second use is to inform the
appropriate treatment plan during the initial five years post-diagnosis,
regardless of the decision to undergo or avoid invasive SLNB surgery. In a
typical year, we estimate approximately 130,000 patients are diagnosed with
invasive cutaneous melanoma in the United States. We launched
DecisionDx-Melanoma in May 2013. Based on the substantial clinical evidence that
we have developed, we have received Medicare coverage for DecisionDx-Melanoma,
which represents approximately 50% of the addressable patient population for
this test.

On August 31, 2020, we commercially launched our cutaneous squamous cell
carcinoma ("SCC") proprietary GEP test, DecisionDx®­SCC, for use in patients
with one or more risk factors (also referred to as "high-risk" SCC). On November
2, 2020, we commercially launched our proprietary GEP test for
difficult-to-diagnose melanocytic lesions, DecisionDx® DiffDx™-Melanoma, for use
in patients with a melanocytic lesion and uncertainty related to the malignancy
of the lesion. We believe that these two additional skin cancer tests address
areas of high clinical need in dermatological cancer and, together, represent an
estimated addressable population of approximately 500,000 patients in the United
States.

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We further expanded our commercially available dermatologic portfolio in May
2021 when we acquired Myriad myPath, LLC (the "Myriad myPath Laboratory") from
Myriad Genetics, Inc. for a cash purchase price of $32.5 million. myPath
Melanoma is a clinically validated GEP test that addresses the same unmet
clinical need as our DecisionDx DiffDx-Melanoma test. Today, we offer both our
myPath Melanoma test and our DecisionDx DiffDx-Melanoma test under an offering
that we refer to as our comprehensive diagnostic offering ("CDO") of molecular
testing solutions. By offering both of these tests in a single offering, we
believe we have demonstrated the ability to improve the test result performance
for patients with difficult-to-diagnose melanocytic lesions.

In 2021, we announced the launch of our innovative pipeline initiative to
develop a genomic test aimed at predicting response to systemic therapy in
patients with moderate to severe psoriasis, atopic dermatitis and related
inflammatory skin conditions. In the United States alone, there are
approximately 18 million patients diagnosed with psoriasis and atopic
dermatitis. Approximately 450,000 of these patients annually are eligible for
systemic therapies. If successful, this inflammatory skin disease pipeline test
has the potential to add approximately $1.9 billion to our current estimated
U.S. total addressable market ("TAM"). In 2021, we initiated a 4,800 patient,
prospective, multi-center clinical study to develop and validate this pipeline
test and have 52 committed sites and approximately 146 patients enrolled. Based
upon our current development and validation timelines, we expect to have initial
validation and development data in 2023 and to commercialize this pipeline test
by the end of 2025.

In addition to our dermatologic franchise, we also market a test for patients
diagnosed with UM. DecisionDx®-UM is a proprietary, risk stratification GEP test
that predicts the risk of metastasis for patients with UM. We believe
DecisionDx-UM is the standard of care in the management of newly diagnosed UM in
the majority of ocular oncology practices in the United States. We launched
DecisionDx-UM in January 2010. Based on the substantial clinical evidence that
we have developed, we have received Medicare coverage for DecisionDx-UM, which
represents approximately 50% of the addressable patient population for this
test.

In December 2021, we extended our commercial portfolio of proprietary tests into
the gastroenterology market through our acquisition of Cernostics, Inc.
("Cernostics") and the TissueCypher® platform. The TissueCypher platform focuses
on unlocking, in the case of the initial test for use in patients with BE, the
importance of the location of the expression of proteins or lack thereof within
the morphology of the disease (also known as spatialomics). This "spatialomic"
information is then interpreted using artificial intelligence approaches to
predict the likelihood of progression to high-grade dysplasia and/or esophageal
cancer in patients with non-dysplastic, indefinite or low-grade dysplasia BE. We
believe the addition of expertise in the spatialomics area positions us for
continued growth and success in the diagnostics space, complementing our
first-to-market dermatologic franchise and our proprietary test for UM.

On April 26, 2022, we completed our acquisition of AltheaDx, a commercial-stage
molecular diagnostics company specializing in the field of pharmacogenomics
("PGx") testing services that are focused on mental health, and the provider of
IDgenetix, a PGx test for mental health conditions. At closing, $65.0 million in
initial consideration was payable by us to AltheaDx security holders, which
consisted of $32.5 million in cash, subject to adjustments for cash, debt,
transaction expenses and working capital, and $32.5 million in shares of our
common stock. Further, up to an additional $75.0 million in cash and common
stock may become payable in connection with the achievement of certain
milestones based on 2022, 2023 and 2024 performance and expanded Medicare
coverage for the IDgenetix test. This acquisition enables us to offer a testing
solution that we believe has the potential to accelerate our impact on patient
care in an area of high unmet clinical need, significantly expand our in-market
estimated U.S. TAM by approximately $5.0 billion and offer incremental value to
patients and clinicians over the standard of care trial-and-error approach. A
randomized controlled trial showed that patients diagnosed with depression, who
were assessed with the IDgenetix test, showed a 2.5 times improvement in
remission rates compared to those who did not have their genes tested.

The number of test reports we generate is a key indicator that we use to assess
our business. A test report is generated when we receive a sample in our
laboratory, and then the relevant test information is entered into our
Laboratory Information Management System, the expression of the biomarkers is
measured, then a proprietary algorithmic analysis of the combined biomarkers is
performed to generate a report providing the results of that analysis, which is
sent to the clinician who ordered the test.

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The number of GEP test reports delivered by us during the three months ended
March 31, 2022 and 2021 and for the year ended December 31, 2021 are presented
in the table below:

                                                              Proprietary Dermatologic GEP Tests
                              DecisionDx-                                                                                                                             TissueCypher Barrett's
                                Melanoma                  DecisionDx-SCC                  CDO(1)                Dermatologic Total            DecisionDx-UM                Esophagus(2)              Grand Total
Q1 2022                           6,023                        1,142                          950                      8,115                         456                            56                 8,627

Q1 2021                           4,060                          527                          218                      4,805                         337                             -                 5,142
Q2 2021                           5,128                          784                          627                      6,539                         468                             -                 7,007
Q3 2021                           5,505                          934                          913                      7,352                         375                             -                 7,727
Q4 2021                           5,635                        1,265                          904                      7,804                         438                            27                 8,269
For year ended December
31, 2021                         20,328                        3,510                        2,662                     26,500                       1,618                            27                28,145



(1)Includes DecisionDx DiffDx-Melanoma, which we launched commercially on
November 2, 2020and myPath Melanoma, which we started offering following our acquisition of the Myriad myPath laboratory on May 28, 2021. We offer both myPath Melanoma and DecisionDx DiffDx-Melanoma as part of our CDO.

(2) We started offering the TissueCypher Barrett Esophagus Test on December 3, 2021following the completion of our acquisition of Cernostic.

For the three months ended March 31, 2022, our dermatologic test report volume
increased by 68.9% compared to the prior period in 2021, largely driven by
continued growth from our DecisionDx-Melanoma test. For a discussion of how we
recognize revenue derived from our tests, refer to "Net Revenues" under
"Components of Results of Operations" below.

The principal focus of our current commercial efforts is to educate clinicians
and pathologists on the value of our molecular diagnostic testing products
through our direct sales force in the United States. During the first half of
2021, we expanded our dermatologic commercial team, bringing our dermatologic
sales force to the mid-60s. In connection with our acquisition of Cernostics in
December 2021, we hired an initial commercial team of approximately 14 outside
sales territories, along with commensurate internal sales associates and medical
science liaisons, to support our launch of the TissueCypher Barrett's Esophagus
test. This dedicated team focuses on gastroenterology specialists that diagnose
and manage patients with BE. Similar to our dermatology commercial team, we will
continue to assess market response and determine what an appropriate commercial
expansion will look like. Based on our initial market research, as well as
initial provider response, we expect to add approximately 10-15 additional
outside sales territories sometime in the third quarter, ending the year with
approximately 25-30 outside sales territories. AltheaDx, which we acquired in
late April 2022, had a commercial team covering approximately 20 outside sales
territories, all of whom have continued with Castle following the transaction.

We continue to see new clinicians order our dermatologic tests for the first
time. For the three months ended March 31, 2022, we saw approximately 592 new
ordering clinicians for our dermatologic tests compared to 410 during the same
period of 2021. Total ordering clinicians for our dermatologic tests were
approximately 3,629 and 2,456 for the three months ended March 31, 2022 and
2021, respectively.

For more information about the metrics we disclose, see “Information About Certain Metrics” below.

In developing our DecisionDx-SCC and DecisionDx DiffDx-Melanoma tests, we
believed that in addition to addressing significant unmet clinical needs, we
would see strategic opportunities for leverage, as many of the clinicians
currently ordering DecisionDx-Melanoma would likely be the same clinicians who
would find value in these other dermatologic GEP tests. For example, we found
that for the three months ended March 31, 2022, approximately 56% of all
clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test
during that same period.

We bill third-party payors and patients for the tests we perform. The majority
of our revenue collections is paid by third-party insurers, including Medicare.
We have received local coverage determinations ("LCDs"), which provide coverage
for our DecisionDx-Melanoma, myPath Melanoma, DecisionDx-UM and IDgenetix tests
that meet certain criteria for Medicare and Medicare Advantage beneficiaries,
representing approximately 60 million covered lives. In 2022, DecisionDx-UM
received coverage from United Healthcare that represents approximately 43
million covered lives. A ''covered life'' means a subscriber, or a dependent of
a subscriber, who is insured under an insurance carrier's policy. The
TissueCypher Barret's Esophagus test is paid by Medicare at the rate published
on Medicare's Clinical Laboratory Fee Schedule ("CLFS") for the test. Effective
March

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On February 24, 2022, we received ADLT status for our TissueCypher test, as discussed in more detail below. ADLT status exempts TissueCypher from what’s called the “14-day rule,” which simplifies the billing process for Medicare patients.

Palmetto GBA MolDX ("Palmetto"), the Medicare Administrative Contractor ("MAC")
responsible for administering MolDX, the program that assesses molecular
diagnostic technologies, issued a final expanded LCD for DecisionDx-Melanoma,
effective November 22, 2020. With this expanded LCD and the accompanying billing
and coding articles, we estimate that a significant majority of the
DecisionDx-Melanoma tests performed for Medicare patients will meet the coverage
criteria. Noridian Healthcare Solutions, LLC ("Noridian"), the MAC responsible
for administering claims for laboratory services performed in Arizona, has
adopted the same coverage policy as Palmetto and also issued an expanded final
LCD for DecisionDx-Melanoma, effective December 6, 2020.

Separately, Palmetto issued a final LCD for DecisionDx-UM, which became
effective in July 2017, and Noridian issued a similar LCD that became effective
in September 2017. The Noridian LCD provides for coverage to determine
metastatic risk in connection with the management of a patient's newly diagnosed
UM and to guide surveillance and referral to medical oncology for those
patients.

On May 17, 2019, Centers for Medicare & Medicaid Services ("CMS") determined
that DecisionDx-UM meets the criteria for "existing advanced diagnostic
laboratory test" status, also referred to as "existing ADLT" status. For 2020,
our rate was set by Noridian, our local MAC, but effective in 2021 our rate is
set annually based upon the median private payor rate for the first half of the
second preceding calendar year. Our rate for 2021 was $7,776 and will remain at
$7,776 for 2022, in each case based on the calculation of the median private
payor rate.

Also, on May 17, 2019, CMS determined that DecisionDx-Melanoma meets the
criteria for "new ADLT" status. Accordingly, from July 1, 2019, through March
31, 2020, the Medicare reimbursement rate was equal to the initial list price of
$7,193. From April 1, 2020, through December 31, 2021, the rate was also $7,193,
which was calculated based upon the median private payor rate for
DecisionDx-Melanoma from July 1, 2019 to November 30, 2019. CMS has informed us
that the rate for 2022 will continue to be $7,193, based on the median private
payor rate.

myPath Melanoma is currently covered under a MolDX LCD policy through Noridian,
which oversees laboratories in both Utah and Arizona. Noridian issued an LCD
that became effective in June 2019. On September 6, 2019, myPath Melanoma was
approved as a new ADLT. The rate for 2022 will be $1,950.

Beginning in 2023, the rates for DecisionDx-Melanoma, DecisionDx-UM, and myPath
Melanoma tests will be set annually based upon the median private payor rate for
the first half of the second preceding calendar year. For example, the rate for
2023 will be set using median private payor rate data from January 1, 2021 to
June 30, 2021.

TissueCypher is performed in our Pittsburgh, Pennsylvania laboratory and falls
under the Medicare jurisdiction that is managed by Novitas Solutions
("Novitas"). Novitas previously reviewed TissueCypher and we are receiving
payments for claims according to the CLFS. For 2022, CMS published in its CLFS a
payment amount of $2,513 for the test. On March 24, 2022, CMS determined that
TissueCypher meets the criteria for "new ADLT" status. From April 1, 2022
through December 31, 2022, CMS has set the initial period rate equal to the
original list price of $2,350, subject to the possible recoupment provision
described below. Effective January 1, 2023, the rate will be based on the median
private payer rates received between April 1, 2022 and August 31, 2022. Note
that for TissueCypher tests reported for April 1, 2022 through December 31,
2022, CMS has the right to recoup the difference between the actual list and
130% of the weighted median if the original list price was greater than 130% of
the weighted median of private payor rates.

IDgenetix is currently covered under a MolDX LCD policy and an accompanying
billing and coding article through Noridian, which oversees laboratories in
California. The Medicare coverage includes depression and was recently expanded
for the following seven additional mental health conditions beyond major
depressive disorder: schizophrenia, bipolar disorder, anxiety disorders, panic
disorder, obsessive-compulsive personality disorder, post-traumatic stress
disorder and attention deficit hyperactivity disorder. The IDgenetix multi-gene
panel is currently reimbursed by Medicare at approximately $1,500.

In the second quarter of 2020, we submitted our technical assessment dossier for
DecisionDx-SCC to Palmetto and Noridian. The dossier was accepted as complete in
the third quarter of 2020. In early 2021, we submitted our technical assessment
dossier for DecisionDx DiffDx-Melanoma. The dossier was accepted as complete in
the first quarter of 2021. We are unable to predict when draft LCDs for
DecisionDx-SCC and DecisionDx DiffDx-Melanoma will be posted and there is no
assurance that any draft or final LCD will match our expectations, be posted in
a timeframe consistent with our historical experience or will be posted at all.

In the second quarter of 2021, Palmetto and the other MACs that participate in
the MolDX program each released a revised draft LCD for DecisionDx-Melanoma. The
draft LCD includes commentary about two publications regarding the clinical
utility of GEP tests and includes an assessment stating that the new data is not
sufficient to change the coverage criteria. There was an open public comment
period, and we submitted comments in support of Medicare coverage. The comment
period ended on

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August 8, 2021. Potential outcomes following the public comment period include
the posting of a final LCD consistent with the draft LCD, issuing a final LCD
with coverage changes or not issuing a final LCD at all. We are unable to
predict the ultimate outcome of this matter.

Since becoming a public company, we have financed our operations with the
revenue generated from the sale of our products, proceeds from our initial
public offering of our common stock (our "IPO") that closed in July 2019,
follow-on public offerings of common stock in June 2020 and December 2020 and
bank debt, which has since been repaid in full. We believe that our existing
cash and cash equivalents and anticipated cash generated from sales of our
products will be sufficient to fund our operations for the next 12 months and
into the foreseeable future. However, we have based these estimates on
assumptions which may prove to be wrong and could result in us depleting our
capital resources sooner than expected.

Our net (loss) income may fluctuate significantly from period to period,
depending on the timing of our planned development activities, the growth of our
sales and marketing activities and the timing of revenue recognition under
Accounting Standards Codification Topic 606, Revenue from Contracts with
Customers ("ASC 606"). We expect our expenses will increase substantially over
time as we:

•conducting clinical studies to generate evidence in support of our current and future product candidates;

•execute our marketing strategy for our current and future commercial products;

•pursue the ongoing and planned development of new products in our pipeline;

•seek to discover and develop additional product candidates;

•hire additional scientific and research and development personnel; and

• add additional operational, financial and management information systems and personnel.

Furthermore, we expect to continue to incur additional costs associated with
operating as a public company, including significant legal, accounting, investor
relations and other expenses.

Impact of the COVID-19 pandemic

We are continuing to closely monitor the impact of the ongoing COVID-19 pandemic
on our business and taking proactive efforts designed to protect the health and
safety of our workforce, continue our business operations and advance our
corporate objectives. We are providing the following update with respect to the
impact of COVID-19 on our business:

•We have maintained and expect to continue to maintain uninterrupted business
operations, with adequate access to reagents and consumables needed for testing
patient samples and normal turnaround times for our delivery of test reports. We
have continued to maintain our previously implemented adjustments to our
operations designed to keep employees safe and comply with federal, state and
local guidelines, including those regarding social distancing.

•Following the onset of the COVID-19 pandemic, we experienced declines in orders
and test report volume in certain periods. For example, in the second quarter of
2020, test reports delivered for our lead product, DecisionDx-Melanoma,
decreased 18.5% compared to the second quarter of 2019. We believe these
decreases in our test report volume were linked to delays and/or cancellations
in patient visits, resulting in fewer diagnostic biopsies and thus a reduction
in the number of diagnoses of cutaneous melanoma in response, as well as the
cumulative impact on promotional responsiveness as a result of reduced sales
calls per day and in-person sales calls during the ongoing COVID-19 pandemic.

•Our commercial team uses a combination of in-person, virtual and non-personal
promotional and educational efforts. Since the beginning of 2021, we have seen
improvements in the number of promotional calls per day, as well as a continued
shift from virtual to in-person sales calls. During the three months ended March
31, 2022 and 2021, in-person sales calls accounted for over 95% and 75% of all
calls during such periods, respectively. However, we have not yet achieved
pre-COVID-19 levels of calls per day per sales representative.

•Our future results will be dependent upon the extent and duration of the
COVID-19 crisis, including the emergence and spread of variants of the virus,
and government restrictions, which are beyond our control. Although state and
local government restrictions put in place to slow the spread of the virus have
been eased in certain locations, restrictions may be reinstated from time to
time in various regions depending on the circumstances, potentially impacting
the flow of future patient visits as well as access to our sales targets. Even
with the easing of state and local restrictions and the availability of
vaccinations, patient visits and diagnoses of the diseases covered by our
diagnostic and prognostic test may be impacted by continued apprehension
regarding possible exposure to the virus as well as a general shift from
in-person clinical visits to telehealth approaches, which may result in missed
or delayed diagnoses of skin cancer and other diseases.

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As conditions are continuously evolving, we are unable to predict how our future
test report volume will be impacted, or the extent to which our results of
operations, financial condition or cash flows will be impacted, by the ongoing
COVID-19 pandemic or other future public health crises. Accordingly, the test
report data presented above is not necessarily indicative of our results of
operations that can be expected for future periods. For more information on the
potential impact of the ongoing COVID-19 pandemic on our business, see the risk
factors included under "Risks Related to Our Business" and the other risk
factors included in Part II, Item 1A., "Risk Factors" in this Quarterly Report
on Form 10-Q.

Factors affecting our performance

We believe that several important factors have had and which we believe will continue to have an impact on our operating performance and results of operations, including:

•Report volume. We believe that the number of reports we deliver to physicians
is an important indicator of the growth of adoption among the healthcare
provider community. Our revenue and costs are affected by the volume of testing
and mix of customers. Our performance depends on our ability to retain and
broaden adoption with existing prescribing physicians, as well as attract new
physicians. In the near term, our report volume may be negatively impacted by
ongoing developments of the ongoing COVID-19 pandemic, as discussed above.

•Reimbursement. We believe that expanding reimbursement is an important
indicator of the value of our products. Payors require extensive evidence of
clinical utility, clinical validity, patient outcomes and health economic
benefits in order to provide reimbursement for diagnostic and prognostic
products. Our revenue depends on our ability to demonstrate the value of our
products to these payors.

•Gross margin. We believe that our gross margin is an important indicator of the
operating performance of our business. Higher gross margins reflect the average
selling price of our tests, as well as the operating efficiency of our
laboratory operations.

•New product development. A significant aspect of our business is our investment
in research and development activities, including activities related to the
development of new products. In addition to the development of new product
candidates, we believe these studies are critical to gaining physician adoption
of new products and driving favorable coverage decisions by payors for such
products.

Information on certain measures

The following provides additional information about certain measures we have disclosed in this MD&A and Analysis of Financial Condition and Results of Operations.

Test reports delivered for DecisionDx-Melanoma, DecisionDx-SCC, myPath
Melanoma/DecisionDx DiffDx-Melanoma, DecisionDx-UM and the TissueCypher
Barrett's Esophagus test represents the number of completed test reports
delivered by us during the reporting period indicated. The period in which a
test report is delivered does not necessarily correspond with the period the
related revenue, if any, is recognized, due to the timing and amount of
adjustments for variable consideration under ASC 606. We use this metric to
evaluate the growth in adoption of our tests and to measure against our internal
performance objectives. We believe this metric is useful to investors in
evaluating the volume of our business activity from period-to-period that may
not be discernible from our reported revenues under ASC 606. We also sometimes
present, on a limited basis, data on the number of orders received. We believe
order data can provide additional insight on current demand trends, particularly
during the ongoing COVID-19 pandemic and with respect to new product launches,
when considered in conjunction with test report volume. However, orders received
in a particular period do not necessarily correspond with actual delivered test
reports or reported revenues for the same period or subsequent periods.

New ordering clinicians for our dermatologic tests represents the number of
clinicians who ordered a dermatologic test from us for the first time during the
reporting period specified. Our dermatologic tests consist of
DecisionDx-Melanoma, DecisionDx-SCC and our CDO. We believe this metric is
useful in evaluating the effectiveness of our sales and marketing efforts in
establishing new relationships with clinicians and increasing the adoption of
our suite of dermatologic tests. We also believe this metric provides useful
information to investors in assessing our ability to expand the use of our
dermatologic tests. Since this metric is based upon the reporting period in
which an order is placed, it does not necessarily correspond to the reporting
period in which either a test report was delivered or revenue was recognized.

Components of operating results

Net income

We generate revenues from the sale of our products. Currently, our revenues are
primarily derived from the sale of DecisionDx-Melanoma and DecisionDx-UM. We
bill third-party payors and patients for the tests we perform.

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Under ASC 606, we recognize revenue at the amount we expect to be entitled,
subject to a constraint for variable consideration, in the period in which our
tests are delivered to the treating physicians. We have determined that our
contracts contain variable consideration under ASC 606 because the amounts paid
by third-party payors may be paid at less than our standard rates or not paid at
all, with such differences considered implicit price concessions. Variable
consideration is recognized only to the extent it is probable that a significant
reversal of revenue will not occur in future periods when the uncertainties are
resolved. Variable consideration is evaluated each reporting period and
adjustments are recorded as increases or decreases in revenues. Variable
consideration for Medicare claims that are not covered by an LCD or otherwise,
including those claims undergoing appeal, is deemed to be fully constrained due
to factors outside our influence (i.e., judgment or actions of third parties)
and the uncertainty of the amount to be received is not expected to be resolved
for a long period of time. For these fully constrained claims, we generally
recognize revenue in the period the uncertainty is favorably resolved, if at
all. Due to potential future changes in Medicare coverage policies and appeal
cycles, insurance coverage policies, contractual rates and other trends in the
reimbursement of our tests, our revenues may fluctuate significantly from period
to period. Additionally, our ability to recognize revenue for our recently
launched tests, DecisionDx-SCC and DecisionDx DiffDx-Melanoma, is dependent on
the development of reimbursement experience and coverage decisions for these
tests. Due to limited reimbursement experience, we are currently recognizing
revenues for these two tests on the basis of actual cash collections.

Our ability to increase our revenues will depend on our ability to further
penetrate our target markets, and, in particular, generate sales through our
direct sales force, develop and commercialize additional tests, obtain
reimbursement from additional third-party payors and increase our reimbursement
rate for tests performed.

Cost of sales (excluding amortization of intangible assets acquired)

The components of our cost of sales are material and service costs associated
with testing samples, personnel costs (including salaries, bonuses, benefits and
stock-based compensation expense), electronic medical record set up costs, order
and delivery systems, shipping charges to transport samples, third-party test
fees, and allocated overhead including rent, information technology costs,
equipment and facilities depreciation and utilities. Costs associated with
testing samples are recorded when the test is processed regardless of whether
and when revenues are recognized with respect to that test. As a result, our
cost of sales as a percentage of revenues may vary significantly from period to
period because we do not recognize all revenues in the period in which the
associated costs are incurred. We expect cost of sales in absolute dollars to
increase as the number of tests we perform increases. Additionally, we expect
cost of sales to increase with the expansion of laboratory capacity and staffing
in advance of the anticipated growth of our recently launched tests.

Gross margin and gross margin percentage are key indicators we use to assess our
business. See the table in "Results of Operations-Comparison of the three months
ended March 31, 2022 and 2021" for details.

Research and development

Research and development expenses include costs incurred to develop our
diagnostic and prognostic tests, collect clinical samples and conduct clinical
studies to develop and support our products. These costs consist of personnel
costs (including salaries, bonuses, benefits and stock-based compensation
expense), prototype materials, laboratory supplies, consulting costs, regulatory
costs, electronic medical records set up costs, costs associated with setting up
and conducting clinical studies and allocated overhead, including rent,
information technology, equipment depreciation and utilities. We expense all
research and development costs in the periods in which they are incurred. We
expect our research and development expenses to increase in absolute dollars as
we continue to invest in research and development activities related to
developing enhanced and new products.

We expect to use a portion of our cash and cash equivalents to further support
and accelerate our research and development activities, including three
important studies that are underway to support our DecisionDx-Melanoma test. The
first is the PERSONALize study, in which we are evaluating DecisionDx-Melanoma
for interactions with adjuvant therapies. The second is the CONNECTION study,
which is collecting long-term outcomes for up to 10,000 patients who have been
tested with DecisionDx-Melanoma. The third is the DECIDE study, which is
designed to determine the association of GEP test results with SLNB surgical
decisions in patients eligible for SLNB as well as to track outcomes for
patients who did and did not undergo SLNB. Also, as noted above, in 2021, we
initiated our 4,800 patient, prospective, multi-center clinical study to
develop, validate and bring to market a pipeline test aimed at predicting
response to systemic therapy in patients with moderate to severe psoriasis,
atopic dermatitis and related inflammatory skin conditions. We have also
initiated two additional disease studies for pipeline tests for new indications.

Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses include executive, selling
and marketing, legal, finance and accounting, human resources, billing and
client services. These expenses consist of personnel costs (including salaries,
bonuses, benefits and stock-based compensation expense), direct marketing
expenses, audit and legal expenses, consulting costs, training and medical
education activities, payor outreach programs and allocated overhead, including
rent, information technology,

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equipment depreciation, and utilities. We expect continued increases in SG&A
expenses related to compliance with the rules and regulations of the SEC and The
Nasdaq Stock market LLC ("Nasdaq") (in particular as we have become a large
accelerated filer), investor relations activities and additional insurance
expenses. Other administrative and professional services expenses within SG&A
are expected to increase with the scale of our business, but selling and
marketing-related expenses are expected to increase significantly, consistent
with our growth strategy.

Amortization of acquired intangible assets

The amortization of acquired intangible assets is mainly associated with the technology developed.

Change in fair value of contingent consideration

The change in fair value of the contingent consideration is associated with our acquisition of Cernostic and the related additional consideration of up to
$50.0 million that may become payable depending on the achievement of certain commercial milestones relating to the financial year ended December 31, 2022 (the “Top-Up Payments”).

interest income

Interest income consists primarily of income on cash and cash equivalents, primarily money market funds.

Interest charges

Interest expense is mainly attributable to a finance lease.

income tax expense

Our consolidated financial statements do not reflect any federal or state income
tax benefits attributable to the net losses we have incurred, due to the
uncertainty of realizing a benefit from those items. As of December 31, 2021, we
had federal net operating loss carryforwards of $99.4 million, of which $43.5
million will begin to expire in 2030 if not utilized to offset federal taxable
income, and $55.9 million may be carried forward indefinitely. Also, as of
December 31, 2021, we had state net operating loss carryforwards of $67.5
million, which begin to expire in 2028 if not utilized to offset state taxable
income.

Results of Operations

Certain prior year amounts in the tables below have been reclassified to conform
to the current year presentation. Specifically, we no longer present gross
margin on the face of our financial statements and therefore the cost of sales
line is now presented within the operating expenses section. This
reclassification had no impact on operating loss, loss before income taxes or
net loss. The calculation of our gross margin is instead presented in a separate
table in following section.

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Comparison of the three months ended March 31, 2022 and 2021

The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):

                                                         Three Months Ended
                                                             March 31,
                                                      2022                2021                         Change
                                                            (unaudited)
Net revenues                                      $   26,852          $  22,813          $   4,039                  17.7  %
Operating expenses
Cost of sales (exclusive of amortization of
acquired intangible assets)                            5,944              3,028              2,916                  96.3  %
Research and development                              10,761              5,908              4,853                  82.1  %
Selling, general and administrative                   30,453             18,161             12,292                  67.7  %
Amortization of acquired intangible assets             1,648                  -              1,648                       NA
Change in fair value of contingent consideration       2,562                  -              2,562                       NA

Total operating expenses                              51,368             27,097             24,271                  89.6  %
Operating loss                                       (24,516)            (4,284)           (20,232)               (472.3) %
Interest income                                           30                  4                 26                       NM
Interest expense                                          (3)                 -                 (3)                      NA

Loss before income taxes                             (24,489)            (4,280)           (20,209)               (472.2) %
Income tax expense                                       134                  -                134                       NA
Net loss                                          $  (24,623)         $  (4,280)         $ (20,343)               (475.3) %




NA = Not applicable

NM = Not meaningful

The following table provides a disaggregation of net revenues by type (in
thousands):

                         Three Months Ended
                             March 31,
                         2022           2021        Change
                            (unaudited)
Dermatologic(1)      $   24,339      $ 20,910      $ 3,429
Other(2)                  2,513         1,903          610
Total net revenues   $   26,852      $ 22,813      $ 4,039



(1)Includes DecisionDx-Melanoma, DecisionDx-SCC and CDO. (2) Mainly consists of DecisionDx-UM.

The following table presents the calculation of gross margin (in thousands,
except percentages):

                                                               Three Months Ended
                                                                   March 31,
                                                            2022                2021               Change
                                                                  (unaudited)
Net revenues                                           $    26,852          $   22,813          $    4,039
Less: Cost of sales (exclusive of amortization of
acquired intangible assets)                                  5,944               3,028               2,916
Less: Amortization of acquired intangible assets             1,648                   -               1,648
Gross margin                                           $    19,260          $   19,785          $     (525)
Gross margin percentage                                       71.7  %             86.7  %            (15.0) %


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The following table shows the amount of stock-based compensation expense (non-cash) reflected in the above line items (in thousands):

                                                             Three Months Ended
                                                                 March 31,
                                                          2022                  2021               Change
                                                                (unaudited)
Cost of sales (exclusive of amortization of
acquired intangible assets)                        $        853             $      510          $      343
Research and development                                  1,828                  1,058                 770
Selling, general and administrative                       5,738                  3,345               2,393
Total stock-based compensation expense             $      8,419             $    4,913          $    3,506



Net Revenues

Net revenues for the three months ended March 31, 2022 increased by $4.0
million, or 17.7%, to $26.9 million compared to the three months ended March 31,
2021, primarily due to $3.4 million higher revenue from dermatologic tests,
primarily DecisionDx-Melanoma, and to a lesser extent, higher revenues from our
other tests (non-dermatologic) of $0.6 million. The increase in dermatologic
revenue was primarily attributable to a 69% increase in test volumes, with
higher test reports delivered across each of our dermatologic offerings, due to
a combination of increased patient flow attributable to the easing of COVID-19
restrictions and the effects of our dermatologic sales force expansion during
the first half of 2021. The higher volumes were partially offset by the effect
of lower positive revenue adjustments related to tests delivered in previous
periods, associated with changes in estimated variable consideration, which were
$0.6 million for the three months ended March 31, 2022 compared to $5.3 million
for the three months ended March 31, 2021. The year-over-year decrease is
primarily attributable to the effect of favorable adjustments related to the
settlement and collection during the three months ended March 31, 2021 of
certain groups of receivables from prior years that did not recur during the
three months ended March 31, 2022. The increase in revenue from our other tests
(non-dermatologic) of $0.6 million was primarily attributable to higher volume
of DecisionDx-UM, which we believe is largely attributable to the easing of
COVID-19 restrictions.

Cost of sales (excluding amortization of intangible assets acquired)

Cost of sales (exclusive of amortization of acquired intangible assets) for the
three months ended March 31, 2022 increased by $2.9 million, or 96.3%, compared
to the three months ended March 31, 2021, primarily due to higher personnel
costs, attributable to additional headcount in our laboratory testing
operations, including headcount attributable to the addition of Cernostics, as
well as increased costs of supplies and services, attributable to the higher
activity levels. Due to the nature of our business, a significant portion of our
cost of sales expenses represent fixed costs associated with our testing
operations. Accordingly, our cost of sales expense will not necessarily increase
or decrease commensurately with the change in net revenues from period to
period. We expect our cost of sales (exclusive of amortization of acquired
intangible assets) to continue to increase in future periods as we hire
additional laboratory personnel and related resources to support our expected
growth in volume for our dermatologic, gastrointestinal, mental health and
pipeline tests.

Gross margin

Our gross margin percentage was 71.7% for the three months ended March 31, 2022,
compared to 86.7% for the same period in 2021. The decrease was primarily due to
this year's amortization expense associated with our acquired intangible assets,
lower positive revenue adjustments related to tests delivered in previous
periods and additional investments in laboratory headcount. In the near term, we
expect that our gross margin percentage will decline, compared to prior periods,
as we invest in additional laboratory personnel and related resources to support
the anticipated growth in our report volumes for tests in advance of obtaining
reimbursement coverage. Additionally, our gross margin percentage will continue
to be negatively impacted by amortization of intangible assets associated with
recent acquisitions.

Research and Development

Research and development expenses increased by $4.9 million, or 82.1%, for the
three months ended March 31, 2022, compared to the three months ended March 31,
2021. Approximately 51% of the increase is attributable to higher personnel
costs, primarily due to expansions in headcount in support of our growth,
including higher stock-based compensation expense of $0.8 million, and
approximately 20% is attributable to higher costs for clinical studies,
including costs related to the PERSONALize, CONNECTION and DECIDE studies. The
remainder of the increase is primarily associated with meeting costs and travel
expenses. We expect to continue to increase our research and development
expenses as we fund ongoing evidence development for our existing products as
well as additional pipeline programs.

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Selling, general and administrative expenses

The following table provides a breakdown of SG&A expenses (in thousands):

                                                          Three Months Ended
                                                              March 31,
                                                          2022           2021         Change
                                                             (unaudited)
Sales and marketing                                   $   18,221      $  9,656      $  8,565
General and administrative                                12,232         

8,505 3,727 Total selling, general and administrative expenses $30,453 $18,161 $12,292


Sales and marketing expenses increased by $8.6 million, or 88.7%, for the three
months ended March 31, 2022, compared to three months ended March 31, 2021.
Approximately $5.4 million, or 63%, of the increase is attributable to higher
personnel costs including salaries, bonuses and stock-based compensation.
Stock-based compensation expense included in sales and marketing expense was
$2.8 million for the three months ended March 31, 2022, compared to $1.5 million
for the three months ended March 31, 2021. Personnel costs have increased
through the expansion of our dermatology-facing commercial team headcount to the
mid-60s during the first and second quarters of 2021 and through our acquisition
of Cernostics in December 2021, where we hired an initial commercial team of
approximately 14 outside sales territories, along with commensurate internal
sales associates and other personnel, to support our launch of the TissueCypher
Barrett's Esophagus test and to serve as a dedicated team focused on
gastroenterology specialists that diagnose and manage patients with BE. The
remainder of the increase in sales and marketing expenses was primarily
associated with training events, meetings, travel and other general increases.
The higher expenses for training events and travel reflect both a higher
headcount as well a return to more in-person activities resulting from the
continued easing of COVID-19 restrictions. We expect sales and marketing
expenses to increase in future periods as we intend to expand our outside sales
territories and sales force further during 2022, as discussed under "Overview"
above.

General and administrative expenses increased by $3.7 million, or 43.8%, for the
three months ended March 31, 2022, compared to three months ended March 31,
2021. The increase is primarily attributable to $2.6 million in higher personnel
costs including salaries, bonuses and stock-based compensation. Stock-based
compensation expense included in general and administrative expense was $2.6
million for the three months ended March 31, 2022, compared to $1.4 million for
the three months ended March 31, 2021. The higher personnel costs reflect
expanded headcount in our administrative support functions. The remainder of the
increase in general and administrative expenses was primarily associated with
professional fees and other general increases.

Amortization of acquired intangible assets

Amortization of acquired intangible assets was $1.6 million for the three months
ended March 31, 2022 and was primarily associated with amortization of developed
technology attributable to the acquisitions of Myriad myPath, LLC and Cernostics
in May 2021 and December 2021, respectively. There was no such amortization
during the three months ended March 31, 2021.

Change in fair value of contingent consideration

The change in fair value of contingent consideration for the three months ended
March 31, 2022 of $2.6 million is related to the remeasurement of the Earnout
Payments associated with our acquisition of Cernostics and primarily reflects
the passage of time. There was no such activity during the three months ended
March 31, 2021.

Stock-based compensation expense

Stock-based compensation expense, which is allocated among cost of sales,
research and development expense and SG&A expense, totaled $8.4 million for the
three months ended March 31, 2022, compared to $4.9 million for the three months
ended March 31, 2021. We expect material increases in stock-based compensation
expense in future periods, reflecting mainly higher awards outstanding due to
growth in our headcount. As of March 31, 2022, we had 400 employees compared to
242 as of March 31, 2021. As of March 31, 2022, the total unrecognized
stock-based compensation cost related to outstanding awards was $97.1 million,
which is expected to be recognized on a straight-line basis over a
weighted-average period of 3.1 years. We expect to continue granting stock-based
compensation awards, which we expect to further contribute to increases in
stock-based compensation expense in future periods.

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Cash and capital resources

Sources of liquidity

Our principal sources of liquidity are our cash and cash equivalents and cash
generated from the sale of our products. As of March 31, 2022 and December 31,
2021, we had cash and cash equivalents of $309.0 million and $329.6 million,
respectively. In addition to the revenue generated from the sale of our
commercial products, we have financed our operations through our IPO in July
2019, two follow-on public offerings of common stock in June 2020 and December
2020, and a $25.0 million secured term loan credit facility, which we repaid in
full in December 2020.

On December 14, 2020, we filed an automatically effective shelf registration
statement on Form S-3 (File No. 333-251331) (our "Shelf Registration Statement")
with the SEC as a "well-known seasoned issuer." The Shelf Registration Statement
allows us to issue an indeterminate number or amount of common stock, preferred
stock, debt securities and warrants from time to time in one or more offerings.
However, there can be no assurance that we will complete any further offerings
of securities under our Shelf Registration Statement. Any future offerings under
our Shelf Registration Statement will be dependent upon, among other factors,
market conditions, available pricing, our financial condition, investor
perception of our prospects, our capital needs and our ability to maintain
status as a well-known seasoned issuer. Our market capitalization as of May 6,
2022 is below the level required to maintain status as well-known seasoned
issuer in the future.

As mentioned above, we expect to use a portion of our cash and cash equivalents,
including any proceeds from subsequent offerings under our Shelf Registration
Statement, to further support and accelerate our research and development
activities, including the clinical studies noted above in "Components of the
Results of Operations-Research and Development."

Material cash needs

Our primary uses of capital are, and we expect will continue to be, compensation
and related expenses, clinical research and development services, laboratory
operations, equipment and related supplies, legal and other regulatory expenses,
general administrative costs and, from time to time, expansion of our laboratory
and office facilities in support of our growth. We anticipate that a substantial
portion of our cash requirements in the foreseeable future will relate to the
further commercialization of our currently marketed products, the development of
our future product candidates in our pipeline and the potential
commercialization of these pipeline products, should their development be
successful.

In December 2021, we acquired Cernostics for $30.7 million in cash and in April
2022, we acquired AltheaDx, for $32.5 million in cash and $32.5 million in
shares of our common stock. Under the definitive agreement to acquire
Cernostics, we also agreed to pay up to an additional $50.0 million of Earnout
Payments, based on the achievement of certain commercial milestones relating to
the year ending December 31, 2022. With respect to AltheaDx, we agreed to pay up
to an additional $75.0 million, 50% in cash and 50% in common stock, based on
the achievement of certain commercial milestones relating to the years ending
December 31, 2022, 2023 and 2024. Our actual liability with respect to these
commercial milestone payments from our acquisitions will depend, in part, on our
ability to successfully integrate the TissueCypher Barrett's Esophagus test
(acquired from Cernostics) and IDgenetix (acquired from AltheaDx) into our suite
of commercial product offerings.

Since our inception, we have generally incurred significant losses and negative
cash flows. For the year ended December 31, 2021 we had a net loss of $31.3
million and an accumulated deficit of $93.8 million as of December 31, 2021. For
the three months ended March 31, 2022, we had a net loss of $24.6 million and an
accumulated deficit of $118.4 million as of March 31, 2022. Our ability to
generate revenue sufficient to achieve profitability will depend heavily on the
successful commercialization of our currently marketed products and the products
we plan to launch in the future as well as our spending on research and
development activities. We expect to incur additional expenses and losses in the
future as we invest in the commercialization of our existing products, the
development of our future product candidates and the commercialization of our
product candidates. Further, we expect that any acquisitions of businesses,
products, assets or technologies will also increase our expenses. We believe
that our existing cash and cash equivalents and anticipated cash generated from
the sale of our commercial products will be sufficient to fund our operations
for the next twelve months. We believe we will meet longer-term expected cash
requirements and obligations through a combination of existing cash and cash
equivalents, anticipated cash generated from sales of our products and issuances
of equity securities or debt offerings, including through our Shelf Registration
Statement. However, we have based these estimates on assumptions that may prove
to be wrong, and we could utilize our available capital resources sooner than we
expect. There are numerous risks and uncertainties associated with developing
genomic tests, including, among others, the uncertainty of:

• successful initiation and completion of clinical study protocols;

•successful identification and acquisition of tissue samples;

•the development and validation of genomic classifiers; and

•the acceptance of new genomic tests by doctors, patients and third-party payers.

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Because of the numerous risks and uncertainties associated with research,
development and commercialization of product candidates, we are unable to
estimate our exact working capital requirements. Our future funding requirements
will depend on and could increase significantly as a result of many factors,
including those listed above as well as those listed in Part II, Item 1A., "Risk
Factors" in this Quarterly Report on Form 10-Q.

We do not currently have any committed external source of funds. In the event
additional funding is required, we expect that we would use a combination of
equity and debt financings, which may not be available to us when needed, on
terms that we deem to be favorable or at all. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
the ownership interest of our stockholders will be diluted, and the terms of
these securities may include liquidation or other preferences that adversely
affect the rights of common stockholders. Debt financing and preferred equity
financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring
additional debt, making acquisitions or capital expenditures or declaring
dividends. Any disruptions to, or volatility in, the credit and financial
markets or any deterioration in overall economic conditions may make any
necessary debt or equity financing more difficult to obtain, more costly and/or
more dilutive. If we are unable to raise additional funds through debt or equity
financings or other arrangements when needed, we may be required to delay,
limit, reduce or terminate our product discovery and development activities or
future commercialization efforts.

Leases

We have entered into various operating and finance leases, which are primarily
associated with our laboratory facilities and office space. Total undiscounted
future minimum payment obligations under our operating leases and finance leases
as of March 31, 2022 totaled approximately $10.3 million, of which $1.0 million
is payable through the remainder of 2022 and $9.3 million through the end of
2033. The leases expire on various dates through 2033 and provide certain
options to renew for additional periods. On March 11, 2022, we amended an
existing lease agreement to lease additional laboratory space in Phoenix,
Arizona. On April 1, 2022, we entered into a new lease agreement with an initial
term of 10.5 years for laboratory and office space located in Pittsburgh,
Pennsylvania. As of March 31, 2022, neither of the two leases had commenced.
Upon commencement, we expect these two leases to increase our undiscounted
future minimum payment obligations by a total of approximately $13.8 million.

Cash flow

The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented (in thousands):

                                                           Three Months Ended
                                                               March 31,
                                                                         2022           2021
                                                                             (unaudited)
Net cash used in operating activities                                 $ (21,430)     $  (3,631)
Net cash used in investing activities                                      (402)          (750)
Net cash provided by financing activities                                 1,216          1,510
Net change in cash and cash equivalents                                 (20,616)        (2,871)
Cash and cash equivalents, beginning of period                          329,633        409,852
Cash and cash equivalents, end of period                              $ 309,017      $ 406,981


Operating Activities

Net cash used in operating activities was $21.4 million for the three months
ended March 31, 2022, and was primarily attributable to the net loss of $24.6
million, decreases in accrued compensation of $6.9 million and increases in
accounts receivable of $2.7 million, partially offset by non-cash stock
compensation expense of $8.4 million, change in fair value of contingent
consideration of $2.6 million and depreciation and amortization of $2.2 million.

Net cash used in operating activities was $3.6 million for the three months
ended March 31, 2021, and was primarily attributable to the net loss of $4.3
million, decreases in accrued compensation of $3.9 million, increases in
accounts receivable of $1.6 million and decreases in other accrued liabilities
of $0.3 million, partially offset by stock compensation expense of $4.9 million
and decreases in prepayments and other current assets of $1.7 million.

The $17.8 million additional net cash used in operating activities for the three
months ended March 31, 2022 compared to the three months ended March 31, 2021 is
primarily due to cash requirements associated with the increases in operating
expenses, the majority of which were attributable to salaries, bonuses and
benefits due to our growth in headcount, as discussed in further

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detail under "Results of Operations-Comparison of the three months ended March
31, 2022 and 2021" above. The effect of the higher expenses on net cash used in
operating activities was partially offset by the higher revenues.

Investing activities

Net cash used in investing activities for the three months ended March 31, 2022
and 2021 consisted of purchases of property, plant and equipment in both periods.

Fundraising activities

Net cash provided by financing activities was $1.2 million for the three months
ended March 31, 2022, and primarily consisted of $0.9 million in proceeds from
contributions to the employee stock purchase plan and $0.4 million in proceeds
from the exercise of stock options.

Net cash provided by financing activities was $1.5 million for the three months
ended March 31, 2021, and primarily consisted of $1.0 million in proceeds from
the exercise of stock options and $0.9 million in proceeds from contributions to
the employee stock purchase plan.

Critical accounting estimates

During the three months ended March 31, 2022, there were no significant changes
to the information discussed under "Critical Accounting Estimates" included in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report on Form 10-K for the year ended December
31, 2021.

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