Financial Data and Key Metrics Changes - Total revenue for Q1 2020 was $38.4 million, a 48% increase compared to Q1 2019, driven primarily by testing services [10][27] - Testing services revenue increased 46% year-over-year to $31.4 million, while product revenue rose 6% to $4.7 million [27] - Gross margin improved to 68% in Q1 2020 from 63% in Q1 2019, with non-GAAP gross margin at 71% compared to 67% [28][29] - Net loss narrowed to $5.8 million in Q1 2020 from $7.5 million in Q1 2019, with net loss per share improving to $0.14 from $0.18 [30][32] - Positive adjusted EBITDA of $0.2 million was recorded, marking the seventh consecutive quarter of positive adjusted EBITDA [11][33] Business Line Data and Key Metrics Changes - Testing services accounted for the majority of revenue growth, particularly from AlloSure Kidney and AlloMap Heart [27] - Digital revenue contributed $2.2 million to the total revenue, reflecting growth from recent acquisitions [10][27] Market Data and Key Metrics Changes - The impact of COVID-19 led to a slowdown in testing services volume towards the end of the quarter, but volumes have nearly returned to pre-COVID levels [12][17] - Transplant centers experienced a significant drop in activity, with overall transplant volumes down by 30% to 40% in some areas [47] Company Strategy and Development Direction - The company launched RemoTraC, a home-based monitoring solution for transplant patients, in response to COVID-19, which has seen rapid adoption [14][15] - CareDx is focusing on digital capabilities and telehealth integration to enhance patient engagement and clinical decision-making [23][82] - The company has withdrawn its 2020 revenue guidance due to uncertainties surrounding COVID-19's impact on business [24][38] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to adapt and recover from the COVID-19 crisis, emphasizing the importance of compassion and common sense in their operational plans [21][26] - There is uncertainty regarding the long-term impact of COVID-19 on transplant activities, but management believes that transplant centers will gradually return to normal operations [49][56] Other Important Information - The company has established a global COVID-19 transplant registry in partnership with the National Institute of Health to gather data on the impact of COVID-19 on transplant patients [18][19] - Cash and cash equivalents as of March 31, 2020, were $32.2 million, with a negative net operating cash flow of $3.1 million due to annual incentive compensation payments [34][35] Q&A Session Summary Question: What is the new operating model for RemoTraC? - Management indicated that RemoTraC has become a significant part of their operations, with patients appreciating the convenience of mobile phlebotomy [40][41] Question: What is the current state of transplant activity? - Management noted that transplant volumes are down by 30% to 40%, but they expect a return to normalcy as centers reopen [46][47] Question: How is the company positioning itself in the post-COVID world? - The company is leveraging digital tools and virtual meetings to maintain engagement with transplant centers and patients [68] Question: What is the impact of the $20 million advance payment program with CMS? - The program allows Medicare providers to request an advance of expected payments, which will be recouped over time [71][72]

PART I. FINANCIAL INFORMATION [Item 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents CareDx, Inc's unaudited condensed consolidated financial statements for the period ended March 31, 2020, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes on accounting policies, business operations, and recent events [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight increase in total assets and liabilities, with a notable increase in operating leases right-of-use assets and a decrease in common stock warrant liability from December 31, 2019, to March 31, 2020 Key Balance Sheet Metrics | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Total assets | $156,784 | $151,736 | | Total liabilities | $55,400 | $52,736 | | Total stockholders' equity | $101,384 | $99,000 | | Cash and cash equivalents | $32,191 | $38,223 | | Operating leases right-of-use assets | $17,004 | $4,730 | | Common stock warrant liability | $1,017 | $6,607 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) CareDx reported a net loss of $5.823 million for the three months ended March 31, 2020, an improvement from the $7.531 million net loss in the prior year period, driven by significant revenue growth across all segments and a reduced expense from the change in fair value of common stock warrant liability Key Operational Metrics | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | $38,380 | $25,982 | | Gross profit | $25,988 | $16,249 | | Loss from operations | $(5,751) | $(5,396) | | Net loss | $(5,823) | $(7,531) | | Basic net loss per share | $(0.14) | $(0.18) | | Diluted net loss per share | $(0.14) | $(0.18) | | Change in estimated fair value of common stock warrant liability | $(405) | $(3,009) | - Total revenue **increased by 48% year-over-year**, primarily driven by a significant increase in testing services revenue and digital and other revenue[10](index=10&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) The company reported a net comprehensive loss of $7.528 million for the three months ended March 31, 2020, an improvement from $8.255 million in the prior year, primarily due to a lower net loss, despite an increased foreign currency translation adjustment Comprehensive Loss Summary | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(5,823) | $(7,531) | | Foreign currency translation adjustments, net of tax | $(1,705) | $(724) | | Net comprehensive loss | $(7,528) | $(8,255) | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to $101.384 million as of March 31, 2020, from $99.000 million at December 31, 2019, primarily due to additional paid-in capital from common stock issuances and employee share-based compensation, partially offset by the net loss and foreign currency translation adjustments Changes in Stockholders' Equity | Metric (in thousands) | December 31, 2019 | March 31, 2020 | | :-------------------- | :---------------- | :------------- | | Total Stockholders' Equity | $99,000 | $101,384 | | Additional Paid-In Capital | $437,976 | $447,888 | | Accumulated Deficit | $(333,813) | $(339,636) | | Common Shares Outstanding | 42,498,430 | 43,019,547 | - Issuance of common stock for cash upon exercise of warrants contributed **$6.299 million** to additional paid-in capital[16](index=16&type=chunk) - Employee share-based compensation expense added **$4.200 million** to additional paid-in capital[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities decreased to $3.055 million for the three months ended March 31, 2020, from $5.867 million in the prior year, indicating improved operational cash management despite a net loss Cash Flow Summary | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(3,055) | $(5,867) | | Net cash used in investing activities | $(1,704) | $(543) | | Net cash used in financing activities | $(735) | $(688) | | Net decrease in cash, cash equivalents and restricted cash | $(6,046) | $(7,185) | | Cash, cash equivalents, and restricted cash at end of period | $32,433 | $57,623 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on the company's business, significant accounting policies, financial instrument valuations, business combinations, intangible assets, commitments, and recent events, offering context to the condensed consolidated financial statements [1. ORGANIZATION AND DESCRIPTION OF BUSINESS](index=8&type=section&id=1.%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) CareDx, Inc is a precision medicine company focused on transplant patients, offering testing services, products, and digital solutions, and has been impacted by the COVID-19 outbreak - CareDx is a precision medicine company specializing in high-value healthcare solutions for transplant patients, with headquarters in South San Francisco, California, and operations in Brisbane, Omaha, Fremantle, and Stockholm[20](index=20&type=chunk) - Key testing services include **AlloSure® Kidney (dd-cfDNA)** and **AlloMap® Heart (gene expression)**, both with established Medicare reimbursement[20](index=20&type=chunk)[21](index=21&type=chunk) - The company offers products like TruSight HLA, AlloSeq suite (Tx, cfDNA, HCT), Olerup SSP®, Olerup SBT™, and QTYPE® for HLA typing and surveillance[23](index=23&type=chunk) - Digital solutions, acquired in 2019 (OttrCare and XynManagement), provide transplant patient tracking, quality tracking, and waitlist management software[20](index=20&type=chunk)[25](index=25&type=chunk) - The COVID-19 outbreak led to a slowdown in testing services volumes in March and April 2020, but CareDx launched **RemoTraC**, a remote home-based blood draw solution, which has enrolled over 2,000 patients[26](index=26&type=chunk) - The company had an accumulated deficit of **$339.6 million** and cash and cash equivalents of **$32.2 million** as of March 31, 2020, but believes existing cash and expected revenues will be sufficient for the next 12 months[27](index=27&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's accounting policies, including U.S. GAAP conformity, credit risk concentrations, and the adoption of new accounting standards, none of which had a material impact on the financial statements - The financial statements are prepared in conformity with U.S. GAAP for interim reporting, with certain notes condensed or omitted[30](index=30&type=chunk) - Approximately **53% of total revenue** for the three months ended March 31, 2020, was derived from Medicare, and **20% of accounts receivable** was due from Medicare[33](index=33&type=chunk) - The company adopted ASC Topic 842 (Leases) on January 1, 2019, recognizing ROU assets and lease liabilities on the balance sheet[34](index=34&type=chunk) - Recent accounting pronouncements adopted on January 1, 2020, including ASU 2018-15 (Cloud Computing), ASU 2018-13 (Fair Value Measurement), and ASU 2016-13 (CECL model), **did not have a material or significant impact** on the condensed consolidated financial statements[36](index=36&type=chunk) [3. NET LOSS PER SHARE](index=11&type=section&id=3.%20NET%20LOSS%20PER%20SHARE) Basic and diluted net loss per share were both $(0.14) for the three months ended March 31, 2020, an improvement from $(0.18) in the prior year, with potentially dilutive securities excluded as their effect would have been antidilutive Net Loss Per Share Calculation | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----- | :-------------------------------- | :-------------------------------- | | Net loss used to compute basic and diluted net loss per share (in thousands) | $(5,823) | $(7,531) | | Weighted-average shares used to compute basic and diluted net loss per share | 42,823,427 | 41,611,399 | | Net loss per share: Basic and diluted | $(0.14) | $(0.18) | - Potentially dilutive securities, including stock options, common stock warrants, and restricted stock units, totaling **4,396,880 for 2020** and **4,101,523 for 2019**, were excluded from diluted EPS calculation due to their antidilutive effect[38](index=38&type=chunk)[40](index=40&type=chunk) [4. FAIR VALUE MEASUREMENTS](index=12&type=section&id=4.%20FAIR%20VALUE%20MEASUREMENTS) The company measures financial assets and liabilities at fair value using a three-tiered hierarchy, with money market funds classified as Level 1 and the common stock warrant liability as Level 3 - Money market funds are classified as Level 1, valued at **$22.761 million** as of March 31, 2020, and **$29.177 million** as of December 31, 2019[42](index=42&type=chunk) - The common stock warrant liability is classified as Level 3, with its fair value decreasing from **$6.607 million** at December 31, 2019, to **$1.017 million** at March 31, 2020[42](index=42&type=chunk)[44](index=44&type=chunk) - The fair value of the common stock warrant liability is estimated using a **Monte Carlo Simulation Model**, considering factors like stock price, expected life, volatility, and risk-free rates[44](index=44&type=chunk) [5. BUSINESS COMBINATIONS](index=13&type=section&id=5.%20BUSINESS%20COMBINATIONS) CareDx completed two acquisitions in 2019, OttrCare for $16.1 million and XynManagement for $2.0 million, expanding the company's digital solutions for transplant patient management - On May 7, 2019, CareDx acquired OttrCare for **$16.1 million**, a leading provider of organ transplant patient tracking software[46](index=46&type=chunk) - The OttrCare acquisition resulted in **$10.2 million in goodwill**, primarily from synergies with transplant center EMR systems and acquired workforce know-how[46](index=46&type=chunk) OttrCare Acquired Intangible Assets | OttrCare Acquired Intangible Assets (in thousands) | Estimated Fair Value | Estimated Useful Lives (Years) | | :--------------------------------- | :------------------- | :----------------------------- | | Customer relationships | $4,200 | 15 | | Developed technology | $2,300 | 10 | | Trademark | $100 | 2 | | Total | $6,600 | | - On August 26, 2019, CareDx acquired XynManagement for **$2.0 million cash**, recognizing **$1.7 million in goodwill** and **$2.1 million in intangible assets**, expanding its digital solutions with XynQAPI and Waitlist Management[52](index=52&type=chunk) [6. GOODWILL AND INTANGIBLE ASSETS](index=16&type=section&id=6.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill remained stable at $23.857 million as of March 31, 2020, while total net intangible assets decreased slightly due to amortization and foreign currency translation adjustments Goodwill and Intangible Asset Balances | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Goodwill | $23,857 | $23,857 | | Total intangible assets, net | $43,112 | $45,541 | - Amortization expense for intangible assets was **$1.1 million** for the three months ended March 31, 2020, compared to **$0.6 million** in the prior year, allocated to cost of revenue and sales and marketing[57](index=57&type=chunk) Estimated Future Amortization Expense | Estimated Future Amortization Expense (in thousands) | | :----------------------------------- | | Remainder of 2020: $3,389 | | 2021: $4,290 | | 2022: $4,273 | | 2023: $4,273 | | 2024: $4,273 | | Thereafter: $20,511 | | Total: $41,009 | [7. BALANCE SHEET COMPONENTS](index=17&type=section&id=7.%20BALANCE%20SHEET%20COMPONENTS) Inventory increased to $6.947 million at March 31, 2020, driven by increases across all categories, while accrued and other liabilities decreased mainly due to a reduction in short-term lease liability Inventory Breakdown | Inventory (in thousands) | March 31, 2020 | December 31, 2019 | | :----------------------- | :------------- | :---------------- | | Finished goods | $1,347 | $1,236 | | Work in progress | $1,685 | $1,189 | | Raw materials | $3,915 | $3,589 | | Total inventory | $6,947 | $6,014 | Accrued and Other Liabilities Breakdown | Accrued and Other Liabilities (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------------------- | :------------- | :---------------- | | Deferred revenue | $3,482 | $3,686 | | Clinical studies | $4,084 | $3,068 | | Short-term lease liability | $1,570 | $3,017 | | Total accrued and other liabilities | $15,576 | $16,838 | [8. COMMITMENTS AND CONTINGENCIES](index=18&type=section&id=8.%20COMMITMENTS%20AND%20CONTINGENCIES) CareDx has various lease and royalty commitments and is involved in ongoing litigation with Natera regarding false advertising and patent infringement, which it intends to vigorously defend - The company executed a second amendment to its Brisbane, California operating lease, extending it for eight years and two months starting January 1, 2021[62](index=62&type=chunk) Lease Cost Summary | Lease Cost (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Operating lease cost | $1,119 | $435 | | Finance lease cost | $53 | $56 | | Total lease cost | $1,172 | $491 | Future Minimum Lease Payments | Future Minimum Lease Payments (in thousands) | Finance Leases | Operating Leases | | :------------------------------------------- | :------------- | :--------------- | | Remainder of 2020 | $157 | $2,514 | | 2021 | $71 | $3,511 | | 2022 | — | $3,963 | | 2023 | — | $2,811 | | 2024 | — | $2,909 | | Thereafter | — | $13,267 | | Total future minimum lease payments | $228 | $28,975 | - CareDx has royalty commitments from license agreements with Stanford (dd-cfDNA patents), Illumina (NGS product lines), and Cibiltech (KidneyCare iBox revenue share)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - The company is involved in litigation with Natera, including a counterclaim for false advertising and a patent infringement suit against AlloSure, which **CareDx intends to vigorously defend**[69](index=69&type=chunk)[71](index=71&type=chunk) [9. 401(K) PLAN](index=22&type=section&id=9.%20401(K)%20PLAN) CareDx sponsors a 401(k) defined contribution plan for U.S. employees, incurring $0.3 million in contributions for the three months ended March 31, 2020 - The company's contributions to the 401(k) plan were **$0.3 million for Q1 2020**, up from **$0.2 million for Q1 2019**[72](index=72&type=chunk) [10. WARRANTS](index=22&type=section&id=10.%20WARRANTS) Common stock warrants classified as liabilities are remeasured at fair value each period, with approximately 306,000 warrants exercised during Q1 2020 - Warrants classified as liabilities are remeasured at fair value, with changes recorded in the consolidated statements of operations[73](index=73&type=chunk) - In Q1 2020, **272,000 warrants were exercised for $0.3 million cash**, and **34,000 warrants were exercised on a cashless basis**[73](index=73&type=chunk) Outstanding Warrants | Outstanding Warrants (as of March 31, 2020) | | :------------------------------------------ | | Original issue date: April 2016 | | Classification: Liability | | Original Term: 7 years | | Exercise Price: $1.12 | | Number of Shares Underlying Warrants: 49,006 | [11. STOCK INCENTIVE PLANS](index=23&type=section&id=11.%20STOCK%20INCENTIVE%20PLANS) The company's stock incentive plans include stock options, restricted stock units (RSUs), and an Employee Stock Purchase Plan (ESPP), with total stock-based compensation expense of $4.259 million for Q1 2020 Stock Incentive Plan Activity | Stock Incentive Plan Activity (as of March 31, 2020) | | :--------------------------------------------------- | | Shares Available for Grant: 1,737,579 | | Stock Options Outstanding: 2,845,862 | | Number of RSU Shares: 1,502,012 | - As of March 31, 2020, there were **$26.2 million** of unrecognized compensation costs related to RSUs, expected to be recognized over 2.77 years, and **$20.1 million** for stock options, expected over 3.04 years[75](index=75&type=chunk) Stock-based Compensation Expense | Stock-based Compensation Expense (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $365 | $776 | | Research and development | $810 | $832 | | Sales and marketing | $971 | $727 | | General and administrative | $2,113 | $3,718 | | Total | $4,259 | $6,053 | [12. INCOME TAXES](index=25&type=section&id=12.%20INCOME%20TAXES) CareDx recorded an income tax benefit of $0.3 million for Q1 2020 and maintains a full valuation allowance against its U.S. and Australian net deferred tax assets due to a history of losses - Income tax benefit was **$0.3 million for Q1 2020**, compared to **$0.6 million for Q1 2019**[81](index=81&type=chunk) - The benefit is mainly due to deferred tax assets from foreign losses and acquired deferred tax liabilities[81](index=81&type=chunk) - A **full valuation allowance** is maintained against U.S. and Australia net deferred tax assets due to the company's history of losses[81](index=81&type=chunk)[83](index=83&type=chunk) [13. SEGMENT REPORTING](index=26&type=section&id=13.%20SEGMENT%20REPORTING) CareDx operates as a single reportable segment, with the majority of its $38.380 million in Q1 2020 revenue and long-lived assets located in the United States - CareDx operates in a **single reportable segment**, with the Chief Executive Officer identified as the Chief Operating Decision Maker (CODM)[84](index=84&type=chunk) Revenue by Geographic Region | Revenue by Geographic Region (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Total United States | $35,573 | $23,240 | | Total Europe | $2,032 | $1,952 | | Total Rest of World | $775 | $790 | | Total | $38,380 | $25,982 | Long-lived Assets by Geographic Region | Long-lived Assets (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------- | :------------- | :---------------- | | United States | $4,583 | $3,346 | | Europe | $406 | $509 | | Rest of World | $512 | $575 | | Total | $5,501 | $4,430 | [14. SUBSEQUENT EVENTS](index=27&type=section&id=14.%20SUBSEQUENT%20EVENTS) Subsequent to March 31, 2020, CareDx received significant liquidity injections from CMS advance payments, an at-the-market equity offering, and the Provider Relief Fund - In April 2020, CareDx received an advance payment of approximately **$20.5 million** from CMS under the CARES Act's Accelerated and Advance Payment Program[87](index=87&type=chunk) - During April 2020, the company issued and sold 1,000,000 shares of common stock through an at-the-market offering, generating approximately **$23.5 million in net proceeds**[88](index=88&type=chunk) - In April 2020, CareDx received approximately **$4.8 million** from the Provider Relief Fund for Medicare providers, a non-repayable payment under the CARES Act[89](index=89&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on CareDx's financial performance, condition, and future outlook, highlighting revenue growth, operational expenses, cash flow dynamics, liquidity, and key business factors [Overview and Recent Highlights](index=29&type=section&id=Overview%20and%20Recent%20Highlights) CareDx achieved $38.4 million in total revenue (48% YoY increase) and its seventh consecutive quarter of positive adjusted EBITDA for Q1 2020, while also launching a remote blood draw service in response to COVID-19 - Total revenue for Q1 2020 reached **$38.4 million**, marking a **48% year-over-year increase**[96](index=96&type=chunk) - The company provided over **15,000 AlloSure Kidney and AlloMap Heart patient results**[96](index=96&type=chunk) - CareDx recorded its **seventh straight quarter of positive adjusted EBITDA**[96](index=96&type=chunk) - Successfully introduced **RemoTraC**, a service for at-home blood draws for transplant patients, in response to COVID-19[96](index=96&type=chunk) [Testing Services](index=29&type=section&id=Testing%20Services) CareDx offers Medicare-covered surveillance tests for heart and kidney transplant recipients and is developing combined solutions and expanding into lung transplantation, supported by ongoing clinical studies - **AlloMap Heart**, a gene expression test, has Medicare coverage (**$3,240 reimbursement**) and positive private payer decisions, supported by landmark clinical trials like CARGO and IMAGE[99](index=99&type=chunk) - **AlloSure Kidney**, a dd-cfDNA test, launched in October 2017, has Medicare coverage (**$2,841 reimbursement**) and is supported by increasing evidence for assessing allograft injury[100](index=100&type=chunk) - **HeartCare** combines AlloMap Heart and AlloSure Heart, with AlloSure Heart receiving a positive draft Local Coverage Determination for Medicare in August 2019[103](index=103&type=chunk) - **KidneyCare** integrates AlloSure Kidney, AlloMap Kidney, and KidneyCare iBox (AI technology), with the OKRA study enrolling 4,000 patients for surveillance[104](index=104&type=chunk) - **AlloSure Lung** is available through a compassionate use program for lung transplant patients, with further studies ongoing[105](index=105&type=chunk) [Products](index=31&type=section&id=Products) CareDx develops and sells HLA typing and NGS-based surveillance solutions for transplant success, with AlloSeq cfDNA and AlloSeq Tx commercially launched in September 2019 - Product offerings include QTYPE, Olerup SSP, and Olerup SBT for HLA typing[106](index=106&type=chunk) - Through a license agreement with Illumina, CareDx is the exclusive worldwide distributor of TruSight HLA and develops other NGS products like **AlloSeq Tx**, **AlloSeq cfDNA**, and **AlloSeq HCT**[106](index=106&type=chunk) - **AlloSeq cfDNA** and **AlloSeq Tx** were commercially launched in September 2019, with AlloSeq cfDNA receiving CE mark approval in January 2020[106](index=106&type=chunk) [Digital](index=31&type=section&id=Digital) CareDx expanded its digital solutions in 2019 through the acquisitions of OttrCare and XynManagement, providing comprehensive transplant patient management and quality tracking software - Acquired **Ottr Complete Transplant Management (OttrCare)** in May 2019, providing transplant patient tracking software with EMR integration[107](index=107&type=chunk) - Acquired **XynManagement, Inc** in August 2019, offering XynQAPI software for transplant quality tracking and SRTR reporting, and Waitlist Management services[109](index=109&type=chunk) [Financial Operations Overview](index=32&type=section&id=Financial%20Operations%20Overview) CareDx generates revenue from testing services, product sales, and digital solutions, with testing services being the primary revenue driver dependent on test volume and reimbursement policies - Revenue is derived from **testing services (82-83% of total revenue)**, product sales (12-17%), and digital and other revenue (0-6%)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - Testing services revenue depends on test volume, third-party payer coverage, collection ability, and commercialization of new offerings[111](index=111&type=chunk) - Product revenue is recognized upon delivery, with no further performance obligations[112](index=112&type=chunk) - Digital and other revenue primarily comes from Ottr software and XynQAPI licenses and services[113](index=113&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Management's financial analysis relies on estimates for revenue recognition, business combinations, and asset valuations, with no material changes in these estimates during Q1 2020 - Critical accounting policies include revenue recognition, business combinations, acquired intangible assets, impairment of assets, and common stock warrant liability[116](index=116&type=chunk) - There were **no material changes** in critical accounting estimates during Q1 2020, except for the determination of estimated present value of lease payments using the incremental borrowing rate[117](index=117&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) For Q1 2020, total revenue increased by 48% to $38.380 million, driven by strong growth in testing services and digital revenue, while operating expenses also increased, leading to a slight increase in loss from operations Q1 2020 vs Q1 2019 Operational Results | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | | Total revenue | $38,380 | $25,982 | $12,398 | | Testing services revenue | $31,442 | $21,518 | $9,924 | | Product revenue | $4,695 | $4,433 | $262 | | Digital and other revenue | $2,243 | $31 | $2,212 | | Gross profit | $25,988 | $16,249 | $9,739 | | Loss from operations | $(5,751) | $(5,396) | $(355) | - Testing services revenue **increased by $9.9 million (46%)** due to over 5,000 additional test results[122](index=122&type=chunk) - Digital and other revenue **increased by $2.2 million**, primarily due to the acquisitions of OttrCare and XynManagement in 2019[124](index=124&type=chunk) - Research and development expenses **increased by $4.4 million (78%)** due to increased headcount, clinical studies, and consulting fees[126](index=126&type=chunk) - Sales and marketing expenses **increased by $4.8 million (69%)** due to higher headcount, tradeshows, marketing, and medical programs[127](index=127&type=chunk) - The change in estimated fair value of common stock warrant liability decreased from a **$3.0 million expense** in Q1 2019 to a **$0.4 million expense** in Q1 2020, a net change of $2.6 million[129](index=129&type=chunk) [Cash Flows](index=35&type=section&id=Cash%20Flows) Net cash used in operating activities significantly decreased to $3.1 million in Q1 2020 from $5.9 million in Q1 2019, primarily due to improved net loss and noncash adjustments Cash Flow Summary | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(3,055) | $(5,867) | | Net cash used in investing activities | $(1,704) | $(543) | | Net cash used in financing activities | $(735) | $(688) | | Net decrease in cash, cash equivalents and restricted cash | $(6,046) | $(7,185) | - Operating activities cash usage decreased due to a lower net loss and noncash items like **stock-based compensation ($4.3 million)** and **depreciation/amortization ($1.6 million)**[132](index=132&type=chunk) - Financing activities included **$1.5 million in common stock repurchases**, partially offset by proceeds from ESPP, warrant exercises, and stock option exercises[134](index=134&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) CareDx had $32.2 million in cash and cash equivalents as of March 31, 2020, and significantly boosted its liquidity post-quarter with nearly $50 million from CMS payments, an equity offering, and the Provider Relief Fund - As of March 31, 2020, CareDx had **$32.2 million in cash and cash equivalents** and an accumulated deficit of **$339.6 million**[135](index=135&type=chunk) - Subsequent to March 31, 2020, the company received approximately **$20.5 million** from CMS advance payments, **$23.5 million** net proceeds from an at-the-market equity offering, and **$4.8 million** from the Provider Relief Fund[135](index=135&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) - The COVID-19 pandemic may affect the company's financial condition and liquidity, but these subsequent events have increased cash and cash equivalents[135](index=135&type=chunk) [Factors Affecting Our Performance](index=37&type=section&id=Factors%20Affecting%20Our%20Performance) CareDx's performance is influenced by the COVID-19 pandemic's impact, test volumes, reimbursement policies, product and digital sales growth, and R&D investments - The COVID-19 outbreak poses risks to supply chains, clinical trials (delays in site initiation and patient enrollment), and the ability to recruit/retain staff[140](index=140&type=chunk) - Performance is tied to the number of AlloSure Kidney and AlloMap Heart tests received and reported[141](index=141&type=chunk) - Reimbursement for AlloMap Heart (Medicare rate **$3,240**) and AlloSure Kidney (Medicare rate **$2,841**) is crucial, with ongoing efforts to secure broader private payer coverage[142](index=142&type=chunk)[145](index=145&type=chunk) - AlloSure Heart received a positive draft Local Coverage Determination for Medicare coverage when used with AlloMap Heart[146](index=146&type=chunk) - Continued growth of product sales (HLA typing, NGS products) and digital sales (Ottr, XynQAPI) are important performance factors[147](index=147&type=chunk)[148](index=148&type=chunk) - Investment in research and development for new transplant diagnostic solutions and the timing of R&D expenses are significant factors[149](index=149&type=chunk)[150](index=150&type=chunk) [Contractual Obligations](index=40&type=section&id=Contractual%20Obligations) As of March 31, 2020, there have been no material changes to CareDx's outstanding contractual obligations from those disclosed in its 2019 Annual Report on Form 10-K - **No material changes** to contractual obligations as of March 31, 2020, compared to December 31, 2019[152](index=152&type=chunk) [Off-Balance Sheet Arrangements](index=40&type=section&id=Off-Balance%20Sheet%20Arrangements) CareDx had no off-balance sheet arrangements as of March 31, 2020 - The company had **no off-balance sheet arrangements** as of March 31, 2020[153](index=153&type=chunk) [Foreign Operations](index=40&type=section&id=Foreign%20Operations) CareDx has operations in Sweden, Austria, and Australia, with foreign currency exchange risk impacting product revenue and operating expenses - Operations in Sweden, Austria, and Australia expose the company to foreign currency risks[154](index=154&type=chunk)[156](index=156&type=chunk) - A hypothetical **10% unfavorable change** in foreign currency exchange rates would negatively impact Q1 2020 financial results by less than **$0.1 million** and product revenue by **$0.3 million**[156](index=156&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) CareDx is exposed to market risks primarily from interest rate fluctuations and foreign currency exchange rates, though the company currently has no formal hedging program - Interest rate risk is minimal; a hypothetical **50 basis point change** would impact financial statements by less than **$0.2 million**[155](index=155&type=chunk) - Foreign currency exchange risk exists due to operations in Sweden, Austria, and Australia, affecting product revenue and operating expenses[156](index=156&type=chunk) - A **10% unfavorable change** in foreign currency exchange rates would negatively impact Q1 2020 financial results by less than **$0.1 million** and product revenue by **$0.3 million**[156](index=156&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that CareDx's disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated as **effective** at the reasonable assurance level as of March 31, 2020[157](index=157&type=chunk) - **No material changes** in internal control over financial reporting occurred during the three months ended March 31, 2020[160](index=160&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) CareDx is involved in ongoing litigation with Natera, including a counterclaim by Natera alleging false advertising and patent infringement suits against AlloSure, which CareDx intends to vigorously defend - Natera filed a counterclaim against CareDx on February 18, 2020, alleging **false and misleading claims** about AlloSure's performance capabilities[162](index=162&type=chunk) - Natera also filed patent infringement suits against CareDx on January 13, 2020, and March 25, 2020, alleging AlloSure infringes U.S. Patents 10,526,658 and 10,597,724[162](index=162&type=chunk) - CareDx **intends to vigorously defend** these matters and believes it has good and substantial defenses[162](index=162&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, primarily focusing on the adverse effects of the COVID-19 pandemic on business operations, supply chain, clinical trials, and financial condition - The **COVID-19 outbreak** is a significant risk, potentially impacting supply chains, clinical trials, and overall financial condition and liquidity[164](index=164&type=chunk) - Failure to meet projected development goals or delays in commercialization of diagnostic solutions could harm the business and stock price[167](index=167&type=chunk) - The inoperability of the Brisbane, California laboratory would severely impact the ability to perform testing services[168](index=168&type=chunk) - Loss of key senior management or inability to attract/retain skilled personnel could adversely affect business operations and strategy[172](index=172&type=chunk) - The company's operating results and stock price are subject to significant fluctuations due to various factors, including demand, reimbursement decisions, and public health emergencies like COVID-19[173](index=173&type=chunk)[177](index=177&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) CareDx repurchased 67,477 shares of common stock during Q1 2020 to satisfy tax withholding obligations upon the vesting of restricted stock unit awards Issuer Purchases of Equity Securities | Period (2020) | Total Number of Shares Purchased | Average Price Paid per Share | | :------------ | :------------------------------- | :--------------------------- | | January 1 - January 31 | 20,047 | $2.95 | | February 1 - February 29 | 47,328 | $6.44 | | March 1 - March 31 | 102 | $9.88 | | Total | 67,477 | — | - Shares were withheld from employees for the payment of taxes related to restricted stock unit awards[179](index=179&type=chunk) [Item 3. Defaults Upon Senior Securities](index=46&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) CareDx reported no defaults upon senior securities for the period - No defaults upon senior securities[180](index=180&type=chunk) [Item 4. Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to CareDx - Not applicable[181](index=181&type=chunk) [Item 5. Other Information](index=46&type=section&id=Item%205.%20Other%20Information) CareDx reported no other information for the period - None[182](index=182&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, equity incentive plans, lease agreements, and required certifications - Includes Amended and Restated Certificate of Incorporation, Bylaws, Common Stock Certificate, Equity Incentive Plans (2014, 2016, 2019), Form of Warrant, and Employee Stock Purchase Plan[184](index=184&type=chunk) - Lists recent lease amendments and consent to sub-sublease agreements[184](index=184&type=chunk) - Includes certifications by the Chief Executive Officer and Chief Financial Officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[184](index=184&type=chunk) - XBRL Instance Document and Taxonomy Extension Documents are also filed[184](index=184&type=chunk)

The Transplant Company Focused on better outcomes through personalized transplant surveillance. February 27, 2020 Safe Harbor Statement These slides and the accompanying oral presentation contain forward-looking statements. All statements other than statements of historical fact contained in this presentation, including statements regarding future financial position of CareDx, Inc. (together with its subsidiaries, "CareDx" or the "Company"), including financial targets, business strategy, and plans and obje ...

CareDx Inc. (NASDAQ:CDNA) Q4 2019 Earnings Conference Call February 27, 2020 4:30 PM ET CompanyParticipants Greg Chodaczek - IR, Gilmartin Group Peter Maag - CEO Michael Bell - CFO Conference Call Participants Bill Quirk - Piper Sandler Brandon Couillard - Jefferies Alex Nowak - Craig-Hallum Capital Group Yi Chen - H.C. Wainwright & Co. Operator Greetings and welcome to CareDx Incorporated Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question- ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________________________________________________________ Form 10-K ________________________________________________________________________________________________________ (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF TH ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides CareDx, Inc.'s unaudited condensed consolidated financial statements and management's analysis of financial performance [ITEM 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=ITEM%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents CareDx, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial components [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20September%2030,%202019%20and%20December%2031,%202018) This section provides a snapshot of CareDx, Inc.'s financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------- | :----------- | :----------- | | Total Assets | $144,833 | $130,697 | | Total Liabilities | $47,290 | $34,769 | | Total Stockholders' Equity | $97,543 | $95,928 | | Cash and Cash Equivalents | $40,927 | $64,616 | | Accounts Receivable | $19,169 | $9,760 | | Intangible Assets, net | $45,781 | $33,252 | | Goodwill | $23,777 | $12,005 | | Total Current Liabilities | $30,971 | $19,504 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030,%202019%20and%202018) This section details CareDx, Inc.'s financial performance, including revenue, gross profit, and net loss for specified periods Condensed Consolidated Statements of Operations (Three Months Ended Sep 30, in thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | Change (YoY) | | :---------------------------------------------------------------- | :----------- | :----------- | :----------- | | Total Revenue | $33,811 | $21,184 | +60% | | Gross Profit | $22,317 | $12,297 | +81% | | Loss from Operations | $(6,747) | $(2,719) | -148% | | Change in fair value of common stock warrant liability | $4,346 | $(17,093) | +125% | | Net Loss attributable to CareDx, Inc. | $(1,813) | $(19,970) | +91% | | Basic Net Loss Per Share | $(0.04) | $(0.54) | +92.6% | Condensed Consolidated Statements of Operations (Nine Months Ended Sep 30, in thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | Change (YoY) | | :---------------------------------------------------------------- | :----------- | :----------- | :----------- | | Total Revenue | $91,247 | $53,060 | +72% | | Gross Profit | $58,508 | $30,582 | +91% | | Loss from Operations | $(18,987) | $(13,163) | -44% | | Change in fair value of common stock warrant liability | $(14) | $(24,540) | +100% | | Net Loss attributable to CareDx, Inc. | $(17,191) | $(43,001) | +60% | | Basic Net Loss Per Share | $(0.41) | $(1.26) | +67.5% | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030,%202019%20and%202018) This section presents CareDx, Inc.'s net loss and other comprehensive income/loss components for the reporting periods Condensed Consolidated Statements of Comprehensive Loss (Three Months Ended Sep 30, in thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | Change (YoY) | | :------------------------------------------------ | :----------- | :----------- | :----------- | | Net Loss | $(1,813) | $(19,970) | +91% | | Foreign currency translation adjustments, net of tax | $(863) | $120 | -819% | | Net Comprehensive Loss | $(2,676) | $(19,850) | +86.5% | Condensed Consolidated Statements of Comprehensive Loss (Nine Months Ended Sep 30, in thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | Change (YoY) | | :------------------------------------------------ | :----------- | :----------- | :----------- | | Net Loss | $(17,191) | $(43,026) | +60% | | Foreign currency translation adjustments, net of tax | $(1,656) | $(1,642) | -0.85% | | Net Comprehensive Loss | $(18,847) | $(44,668) | +57.8% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030,%202019%20and%202018) This section outlines changes in CareDx, Inc.'s equity, including capital contributions and accumulated deficit, over the reporting period Stockholders' Equity Changes (Nine Months Ended Sep 30, 2019, in thousands) | Metric | Dec 31, 2018 | Sep 30, 2019 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $95,928 | $97,543 | +$1,615 | | Additional Paid-In Capital | $412,010 | $432,471 | +$20,461 | | Accumulated Deficit | $(311,845) | $(329,036) | -$17,191 | | Common Shares Outstanding | 41,384,960 | 42,421,115 | +1,036,155 | - Key drivers for the increase in Additional Paid-In Capital include **share-based compensation expense ($6,001 thousand, $4,938 thousand, $5,912 thousand for Q1, Q2, Q3 2019 respectively)** and proceeds from stock option and warrant exercises[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Nine%20Months%20Ended%20September%2030,%202019%20and%202018) This section details CareDx, Inc.'s cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, in thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | Change | | :---------------------------------------------------------------- | :----------- | :----------- | :----- | | Net Cash Used in Operating Activities | $(1,686) | $(6,005) | +$4,319 | | Net Cash Used in Investing Activities | $(21,237) | $(6,969) | -$14,268 | | Net Cash (Used in) Provided by Financing Activities | $(214) | $12,956 | -$13,170 | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(23,630) | $(80) | -$23,550 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $41,178 | $26,394 | +$14,784 | - Investing activities in 2019 included **$18.1 million** for business acquisitions (Ottr and XynManagement) and **$1.1 million** for intangible assets[22](index=22&type=chunk) - Financing activities in 2019 were impacted by **$4.0 million** in taxes paid for RSU settlements, partially offset by **$3.2 million** from stock option exercises and **$0.8 million** from ESPP[22](index=22&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements [1. ORGANIZATION AND DESCRIPTION OF BUSINESS](index=9&type=section&id=1.%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) CareDx, Inc. is a precision medicine company focused on the discovery, development, and commercialization of high-value healthcare solutions for transplant patients. The company offers a range of testing services, products, and digital solutions, expanding its portfolio through recent acquisitions of Ottr and XynManagement - CareDx is a precision medicine company specializing in high-value healthcare solutions for transplant patients[24](index=24&type=chunk) - Key testing services include AlloMap Heart (gene expression for heart transplant), AlloSure Kidney (dd-cfDNA for kidney transplant), and emerging solutions like AlloSure Lung, HeartCare, and KidneyCare[25](index=25&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk) - Product offerings include HLA typing solutions (Olerup SSP, Olerup SBT, QTYPE, TruSight HLA) and NGS-based kitted solutions (AlloSeq Tx, AlloSeq cfDNA, AlloSeq HCT)[32](index=32&type=chunk)[33](index=33&type=chunk) - Recent acquisitions of Ottr (May 2019) and XynManagement (August 2019) expanded the Digital Solutions portfolio, providing transplant patient tracking software and quality/waitlist management tools[26](index=26&type=chunk)[35](index=35&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the significant accounting policies, including the basis of presentation (U.S. GAAP, SEC interim reporting), reclassifications, and the use of estimates. It highlights the adoption of ASC 842 (Leases) effective January 1, 2019, which resulted in the recognition of ROU assets and lease liabilities, and discusses other recent accounting pronouncements - Financial statements are prepared in conformity with U.S. GAAP and SEC interim reporting requirements, with certain notes and information condensed or omitted[39](index=39&type=chunk) - Effective January 1, 2019, the company adopted ASC 842 (Leases), recognizing a Right-of-Use (ROU) asset of approximately **$3.0 million** and a lease liability of approximately **$3.8 million**[48](index=48&type=chunk)[52](index=52&type=chunk) - Reclassifications in prior period amounts were made for consistent presentation, including separate presentation of debt extinguishment expenses, combined digital and other revenue, and combined cost of revenue, with no effect on reported results[41](index=41&type=chunk) [3. NET LOSS PER SHARE](index=13&type=section&id=3.%20NET%20LOSS%20PER%20SHARE) Basic and diluted net loss per share are computed by dividing net loss by the weighted-average common shares outstanding, without considering common share equivalents due to their antidilutive effect. For the three months ended September 30, 2019, basic and diluted net loss per share was $(0.04), a significant improvement from $(0.54) in the prior year. For the nine months, it was $(0.41) compared to $(1.26) in 2018 Net Loss Per Share (Three and Nine Months Ended Sep 30, in thousands) | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :---------------------------------------------------------------------------------------------------------------- | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Net Loss attributable to CareDx, Inc. | $(1,813) | $(19,970) | $(17,191) | $(43,001) | | Weighted-average shares used to compute basic and diluted net loss per share | 42,393,550 | 37,154,293 | 42,048,647 | 34,134,138 | | Basic and Diluted Net Loss Per Share | $(0.04) | $(0.54) | $(0.41) | $(1.26) | - Common stock equivalents (options, warrants, RSUs) totaling **4,576,094 shares** for the nine months ended September 30, 2019, were excluded from diluted EPS calculation as their effect would be antidilutive[61](index=61&type=chunk) [4. FAIR VALUE MEASUREMENTS](index=14&type=section&id=4.%20FAIR%20VALUE%20MEASUREMENTS) The company measures financial assets and liabilities at fair value using a three-tiered hierarchy. Money market funds are classified as Level 1. The common stock warrant liability is classified as Level 3 and valued using a Monte Carlo Simulation Model, which requires complex assumptions. The fair value of the common stock warrant liability decreased from $10.0 million at Dec 31, 2018, to $6.9 million at Sep 30, 2019 - Financial assets and liabilities are measured at fair value using a three-tiered hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs; Level 3: unobservable inputs)[62](index=62&type=chunk) Financial Assets and Liabilities Measured at Fair Value (in thousands) | Metric | Sep 30, 2019 (Level 1) | Sep 30, 2019 (Level 3) | Sep 30, 2019 (Total) | Dec 31, 2018 (Level 1) | Dec 31, 2018 (Level 3) | Dec 31, 2018 (Total) | | :------------------------- | :--------------------- | :--------------------- | :------------------- | :--------------------- | :--------------------- | :------------------- | | Money market funds | $33,691 | — | $33,691 | $59,471 | — | $59,471 | | Common stock warrant liability | — | $6,940 | $6,940 | — | $10,003 | $10,003 | - The common stock warrant liability is a Level 3 measurement, valued using a Monte Carlo Simulation Model, which considers stock price, expected life, volatility, and risk-free rates[66](index=66&type=chunk) [5. BUSINESS COMBINATIONS](index=16&type=section&id=5.%20BUSINESS%20COMBINATIONS) CareDx completed two business acquisitions in 2019: Ottr Complete Transplant Management on May 7, 2019, for $16.1 million, and XynManagement, Inc. on August 26, 2019, for $2.0 million cash plus $1.4 million in contingent consideration. These acquisitions expanded CareDx's digital solutions portfolio, adding transplant patient tracking software and quality/waitlist management tools. Goodwill of $10.0 million and $1.7 million was recognized for Ottr and XynManagement, respectively, primarily for synergies - Acquired Ottr Complete Transplant Management on May 7, 2019, for **$16.1 million** (or **$16,148 thousand**) adding transplant patient tracking software used in over **60** U.S. transplant centers[26](index=26&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) - Acquired XynManagement, Inc. on August 26, 2019, for **$2.0 million** cash and **$1.4 million** in contingent consideration, adding XynQAPI software for quality tracking and Waitlist Management solutions[26](index=26&type=chunk)[84](index=84&type=chunk) Ottr Acquisition Summary (in thousands) | Metric | Amount | | :---------------------------------------------------------------- | :----- | | Total Consideration (Cash + Accrued purchase consideration) | $16,148 | | Identifiable Intangible Assets (Customer relationships, developed technology, trademark) | $6,600 | | Goodwill | $10,044 | [6. GOODWILL AND INTANGIBLE ASSETS](index=18&type=section&id=6.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill increased from $12.0 million at January 1, 2019, to $23.8 million at September 30, 2019, primarily due to $11.8 million acquired from business combinations (Ottr and XynManagement). Total intangible assets increased to $45.8 million, including acquired and developed technology, customer relationships, commercialization rights, and trademarks. The company also detailed the acquisition of intangible assets through the Illumina License and Commercialization Agreement and the Cibiltech License and Commercialization Agreement Goodwill (in thousands) | Metric | Amount | | :-------------------- | :----- | | Balance as of Jan 1, 2019 | $12,005 | | Goodwill acquired | $11,772 | | Balance as of Sep 30, 2019 | $23,777 | Intangible Assets with Finite Lives (Sep 30, 2019, in thousands) | Asset Type | Net Carrying Amount | Weighted Average Remaining Useful Life (Years) | | :-------------------------------- | :------------------ | :--------------------------------------------- | | Acquired and developed technology | $18,199 | 8.4 | | Customer relationships | $13,199 | 10.7 | | Commercialization rights | $8,049 | 9.9 | | Trademarks and tradenames | $1,512 | 8.6 | | **Total intangible assets with finite lives** | **$40,959** | | | Acquired in-process technology | $4,822 | — | | **Total intangible assets** | **$45,781** | | - Acquired intangible assets include those from the Illumina License Agreement (TruSight HLA, AlloSeq Tx, AlloSeq HCT) and the Cibiltech Agreement (commercialization rights for KidneyCare iBox)[89](index=89&type=chunk)[98](index=98&type=chunk) [7. BALANCE SHEET COMPONENTS](index=21&type=section&id=7.%20BALANCE%20SHEET%20COMPONENTS) Inventory increased from $4.9 million at December 31, 2018, to $5.9 million at September 30, 2019, with increases across finished goods, work in progress, and raw materials. Accrued and other liabilities significantly increased from $5.6 million to $15.0 million, primarily driven by deferred revenue, deferred payments for intangible assets, and short-term lease liabilities Inventory (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :---------------- | :----------- | :----------- | | Finished goods | $2,549 | $2,506 | | Work in progress | $1,009 | $651 | | Raw materials | $2,344 | $1,786 | | **Total inventory** | **$5,902** | **$4,943** | Accrued and Other Liabilities (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Deferred revenue | $3,190 | $39 | | Clinical studies | $2,545 | $1,815 | | Deferred payments for intangible assets | $2,077 | — | | Short-term lease liability | $2,033 | — | | **Total accrued and other liabilities** | **$15,002** | **$5,637** | [8. COMMITMENTS](index=23&type=section&id=8.%20COMMITMENTS) The company has various commitments, including operating and finance leases for facilities, with total future minimum lease payments of $3.5 million as of September 30, 2019. Royalty commitments exist under the Stanford License and Illumina License Agreement, and a revenue-sharing agreement with Cibiltech for KidneyCare iBox. Other commitments include minimum purchase commitments from Illumina and potential liabilities from litigation Future Minimum Lease Commitments (in thousands) | Year Ending December 31, | Finance Leases | Operating Leases | Total | | :----------------------- | :------------- | :--------------- | :---- | | Remainder of 2019 | $52 | $564 | $616 | | 2020 | $209 | $2,287 | $2,496 | | 2021 | $71 | $215 | $286 | | 2022 | — | $93 | $93 | | **Total future minimum lease payments** | **$332** | **$3,159** | **$3,491** | - Royalty commitments include low single-digit royalties on net sales under the Stanford License and mid-single to low-double digits on future commercialized products under the Illumina License Agreement[111](index=111&type=chunk)[112](index=112&type=chunk) - The company has agreed to share an agreed-upon percentage of revenue with Cibiltech if revenues are generated from KidneyCare iBox[114](index=114&type=chunk) [9. DEBT](index=25&type=section&id=9.%20DEBT) CareDx had no outstanding debt as of September 30, 2019, or December 31, 2018. Previous debt, including the Perceptive Credit Agreement and JGB Debt, was extinguished in 2018 - No outstanding debt as of September 30, 2019, or December 31, 2018[118](index=118&type=chunk) - The Perceptive Credit Agreement was paid off and terminated in November 2018, resulting in a **$3.0 million** debt extinguishment loss[119](index=119&type=chunk) - The JGB Debt was converted into common stock in Q1 2018, leading to a **$2.8 million** loss on debt extinguishment[120](index=120&type=chunk) [10. 401(K) PLAN](index=25&type=section&id=10.%20401(K)%20PLAN) The company sponsors a 401(k) defined contribution plan for U.S. employees, with contributions starting January 1, 2018. Expenses related to 401(k) contributions were $0.1 million for each of the three months ended September 30, 2019 and 2018, and $0.5 million and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively 401(k) Plan Contributions (in thousands) | Period | 2019 | 2018 | | :-------------------------------- | :--- | :--- | | Three Months Ended September 30 | $100 | $100 | | Nine Months Ended September 30 | $500 | $200 | [11. WARRANTS](index=26&type=section&id=11.%20WARRANTS) Warrants are classified as either equity or liability based on their terms. Liability-classified warrants are remeasured at fair value each period using the Monte Carlo Simulation Model. For the nine months ended September 30, 2019, warrants to purchase 94,000 shares were exercised for cash ($0.1 million), and 207,400 warrants were exercised on a cashless basis - Warrants are classified as equity or liability; liability warrants are remeasured at fair value using the Monte Carlo Simulation Model[124](index=124&type=chunk) Warrant Exercises (Nine Months Ended Sep 30) | Period | Cash Payments (in thousands) | Cashless Exercises (shares) | Shares Issued (cashless) | | :-------------------------------- | :--------------------------- | :-------------------------- | :----------------------- | | Nine Months Ended Sep 30, 2019 | $100 | 207,400 | 49,000 | | Nine Months Ended Sep 30, 2018 | $11,000 | N/A | N/A | Outstanding Warrants as of September 30, 2019 | Classification | Original Term | Exercise Price | Number of Shares Underlying Warrants | | :------------- | :------------ | :------------- | :----------------------------------- | | Equity | 5 years | $6.96 | 34,483 | | Liability | 7 years | $1.12 | 320,757 | | **Total** | | | **355,240** | [12. STOCK INCENTIVE PLANS](index=26&type=section&id=12.%20STOCK%20INCENTIVE%20PLANS) The company operates stock option and Restricted Stock Unit (RSU) plans. As of September 30, 2019, there were 2,668,388 stock options outstanding and 1,552,466 RSUs outstanding. Unrecognized compensation costs for RSUs were $27.2 million (expected over 3.04 years) and for stock options were $19.2 million (expected over 3.23 years). The company also has an Employee Stock Purchase Plan (ESPP) Stock Options and RSU Activity (Dec 31, 2018 to Sep 30, 2019) | Metric | Stock Options Outstanding | Number of RSU Shares | | :-------------------------------- | :------------------------ | :------------------- | | Balance—December 31, 2018 | 2,501,057 | 968,364 | | Options granted | 946,030 | — | | RSUs granted | — | 1,222,488 | | Options exercised | (573,054) | — | | RSUs vested | — | (493,179) | | Balance—September 30, 2019 | 2,668,388 | 1,552,466 | - Total intrinsic value of options exercised was **$14.3 million** for the nine months ended September 30, 2019[130](index=130&type=chunk) - Unrecognized compensation costs: **$27.2 million** for RSUs (weighted-average period of **3.04 years**) and **$19.2 million** for stock options (weighted-average period of **3.23 years**)[130](index=130&type=chunk)[132](index=132&type=chunk) Stock-based Compensation Expense (in thousands) | Expense Category | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :----------------------- | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Cost of revenue | $425 | $123 | $1,705 | $375 | | Research and development | $954 | $763 | $3,227 | $1,438 | | Sales and marketing | $1,125 | $199 | $2,796 | $729 | | General and administrative | $3,460 | $775 | $9,282 | $2,536 | | **Total** | **$5,964** | **$1,860** | **$17,010** | **$5,078** | [13. INCOME TAXES](index=30&type=section&id=13.%20INCOME%20TAXES) The company recorded an income tax benefit of $0.9 million for the three months and $1.8 million for the nine months ended September 30, 2019, primarily due to deferred tax assets from foreign losses and acquired deferred tax liabilities. A full valuation allowance offsets U.S. net deferred tax assets due to a history of U.S. losses Income Tax Benefit (in thousands) | Period | 2019 | 2018 | | :-------------------------------- | :--- | :--- | | Three Months Ended September 30 | $949 | $290 | | Nine Months Ended September 30 | $1,775 | $1,095 | - The income tax benefit is mainly from deferred tax assets from foreign losses and acquired deferred tax liabilities[140](index=140&type=chunk) - A full valuation allowance is recognized against U.S. net deferred tax assets due to the company's history of U.S. losses[140](index=140&type=chunk) [14. SEGMENT REPORTING](index=30&type=section&id=14.%20SEGMENT%20REPORTING) CareDx operates in a single reportable segment, with its Chief Executive Officer identified as the Chief Operating Decision Maker (CODM). Revenue is disaggregated by geographic region and type (testing services, product, digital and other). The United States is the largest revenue contributor across all categories - The company operates in a single reportable segment, with the CEO as the CODM[142](index=142&type=chunk) Total Revenue by Geographic Region (in thousands) | Region | Three Months Sep 30, 2019 | Nine Months Sep 30, 2019 | | :---------------------- | :------------------------ | :----------------------- | | Total United States | $31,064 | $83,079 | | Total Europe | $1,994 | $5,902 | | Total Rest of the World | $753 | $2,266 | | **Total** | **$33,811** | **$91,247** | Revenue by Type and Geographic Region (Nine Months Ended Sep 30, 2019, in thousands) | Revenue Type | United States | Europe | Rest of the World | Total | | :---------------------- | :------------ | :----- | :---------------- | :---- | | Testing services revenue | $75,011 | — | $410 | $75,421 | | Product revenue | $5,606 | $5,812 | $1,808 | $13,226 | | Digital and other revenue | $2,462 | $90 | $48 | $2,600 | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting revenue drivers, expense trends, recent achievements, and factors affecting performance. It includes a comparison of financial results for the three and nine months ended September 30, 2019 and 2018, and discusses liquidity, capital resources, and critical accounting policies [Overview and Recent Highlights](index=34&type=section&id=Overview%20and%20Recent%20Highlights) This section provides an overview of CareDx's business, key testing services, and significant financial and operational achievements for the recent quarter - CareDx is a global transplant diagnostics company focused on high-value diagnostic solutions for transplant patients[153](index=153&type=chunk) - Key testing services include AlloMap Heart (Medicare reimbursement **$3,240**) and AlloSure Kidney (Medicare reimbursement **$2,841**), with ongoing clinical studies (SHORE, K-OAR, OKRA) to support utility[157](index=157&type=chunk)[160](index=160&type=chunk)[162](index=162&type=chunk)[166](index=166&type=chunk)[168](index=168&type=chunk) - Recent highlights for Q3 2019 include: - Total revenue of **$33.8 million**, up **60% YoY** - **8,524** AlloSure Kidney patient results and **4,726** AlloMap Heart patient results (up **16% YoY**) - Launch of AlloSeq Tx 17 and AlloSeq cfDNA globally - Initiation of the OKRA study - GAAP net loss of **$1.8 million**, non-GAAP net income of **$0.9 million**, and positive adjusted EBITDA of **$0.8 million**[179](index=179&type=chunk) [Financial Operations Overview](index=38&type=section&id=Financial%20Operations%20Overview) This section outlines CareDx's primary revenue streams from testing services, product sales, and digital solutions, and factors driving their growth - Revenue streams include testing services (AlloMap Heart, AlloSure Kidney), product sales (Olerup SSP, QTYPE, Olerup SBT, TruSight HLA), and digital and other revenue (Ottr software, XynQAPI licenses, other licensing)[180](index=180&type=chunk)[181](index=181&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) Revenue Contribution by Type (Q3 and 9M Ended Sep 30, 2019) | Revenue Type | Q3 2019 (% of Total) | 9M 2019 (% of Total) | | :---------------------- | :------------------- | :------------------- | | Testing Services Revenue | 83% | 83% | | Product Revenue | 12% | 14% | | Digital and Other Revenue | 4% | 3% | - Testing services revenue growth is driven by test volume, establishment of coverage policies, collection from payers, and expansion into new markets[181](index=181&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=39&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This section details CareDx's critical accounting policies and the significant judgments and estimates involved in financial reporting - Critical accounting policies involve significant judgments and estimates, including revenue recognition, business combinations, acquired intangible assets, impairment of goodwill and long-lived assets, common stock warrant liability, and derivative liability[188](index=188&type=chunk) - No material changes in critical accounting estimates during the period, except for the determination of the leases incremental borrowing rate estimate due to ASC 842 adoption[189](index=189&type=chunk) [Recently Issued Accounting Standards](index=39&type=section&id=Recently%20Issued%20Accounting%20Standards) This section refers to Note 2 for details on recently issued accounting pronouncements and their estimated financial impacts - Refer to Note 2 for details on recently issued accounting pronouncements, adoption dates, and estimated financial impacts[190](index=190&type=chunk) [Comparison of the Three Months Ended September 30, 2019 and 2018](index=40&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030,%202019%20and%202018) This section compares CareDx's financial performance for the three months ended September 30, 2019, against the prior year, detailing revenue and expense changes Revenue Performance (Three Months Ended Sep 30, in thousands) | Revenue Type | 2019 | 2018 | Change ($) | Change (%) | | :---------------------- | :--- | :--- | :--------- | :--------- | | Testing services revenue | $28,226 | $16,847 | $11,379 | 68% | | Product revenue | $4,200 | $4,223 | $(23) | -1% | | Digital and other revenue | $1,385 | $114 | $1,271 | 1115% | | **Total revenue** | **$33,811** | **$21,184** | **$12,627** | **60%** | - Testing services revenue growth was driven by increased **AlloSure Kidney patient results (8,524 in 2019 vs. 3,708 in 2018)** and **AlloMap Heart patient results (4,726 in 2019 vs. 4,080 in 2018)**[194](index=194&type=chunk) Expense and Profit Performance (Three Months Ended Sep 30, in thousands) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :---------------------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Gross profit | $22,317 | $12,297 | $10,020 | 81% | | Research and development expenses | $8,521 | $3,868 | $4,653 | 120% | | Sales and marketing expenses | $11,058 | $5,971 | $5,087 | 85% | | General and administrative expenses | $9,485 | $5,177 | $4,308 | 83% | | Change in fair value of common stock warrant liability | $4,346 | $(17,093) | $21,439 | 125% | | Net loss attributable to CareDx, Inc. | $(1,813) | $(19,970) | $18,157 | 91% | [Comparison of Nine Months Ended September 30, 2019 and 2018](index=42&type=section&id=Comparison%20of%20Nine%20Months%20Ended%20September%2030,%202019%20and%202018) This section compares CareDx's financial performance for the nine months ended September 30, 2019, against the prior year, detailing revenue and expense changes Revenue Performance (Nine Months Ended Sep 30, in thousands) | Revenue Type | 2019 | 2018 | Change ($) | Change (%) | | :---------------------- | :--- | :--- | :--------- | :--------- | | Testing services revenue | $75,421 | $41,448 | $33,973 | 82% | | Product revenue | $13,226 | $11,080 | $2,146 | 19% | | Digital and other revenue | $2,600 | $532 | $2,068 | 389% | | **Total revenue** | **$91,247** | **$53,060** | **$38,187** | **72%** | - Testing services revenue growth was primarily driven by **AlloSure Kidney patient results (21,589 in 2019 vs. 7,059 in 2018)** and **AlloMap Heart patient results (13,578 in 2019 vs. 12,059 in 2018)**[208](index=208&type=chunk) Expense and Profit Performance (Nine Months Ended Sep 30, in thousands) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :---------------------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Gross profit | $58,508 | $30,582 | $27,926 | 91% | | Research and development expenses | $21,765 | $10,732 | $11,033 | 103% | | Sales and marketing expenses | $28,627 | $15,916 | $12,711 | 80% | | General and administrative expenses | $27,103 | $16,080 | $11,023 | 69% | | Change in fair value of common stock warrant liability | $(14) | $(24,540) | $24,526 | 100% | | Net loss attributable to CareDx, Inc. | $(17,191) | $(43,001) | $25,810 | 60% | [Cash Flows for the Nine Months Ended September 30, 2019 and 2018](index=46&type=section&id=Cash%20Flows%20for%20the%20Nine%20Months%20Ended%20September%2030,%202019%20and%202018) This section analyzes CareDx's cash flow activities for the nine months ended September 30, 2019 and 2018, across operating, investing, and financing categories Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2019 | 2018 | Change ($) | | :---------------------------------------------------------------- | :--- | :--- | :--------- | | Net cash used in operating activities | $(1,686) | $(6,005) | $4,319 | | Net cash used in investing activities | $(21,237) | $(6,969) | $(14,268) | | Net cash (used in) provided by financing activities | $(214) | $12,956 | $(13,170) | | Net decrease in cash, cash equivalents and restricted cash | $(23,630) | $(80) | $(23,550) | - Investing activities in 2019 included **$18.1 million** for business acquisitions (Ottr and XynManagement) and **$1.1 million** for intangible assets[230](index=230&type=chunk) - Financing activities in 2019 were primarily impacted by **$4.0 million** in taxes paid for RSU settlements, partially offset by **$3.2 million** from stock option exercises[232](index=232&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses CareDx's ability to meet its financial obligations, detailing its cash position, accumulated deficit, and future financing needs - Accumulated deficit of **$329.0 million** as of September 30, 2019[236](index=236&type=chunk) - Cash and cash equivalents of **$40.9 million** as of September 30, 2019, with no outstanding debt[236](index=236&type=chunk) - Believes existing cash and expected revenues are sufficient for the next **12 months**, but may require additional financing[37](index=37&type=chunk) [Factors Affecting Our Performance](index=47&type=section&id=Factors%20Affecting%20Our%20Performance) This section identifies key internal and external factors influencing CareDx's financial and operational performance, including test volumes, product sales, and R&D investments - Performance is tied to the number of AlloMap Heart and AlloSure Kidney tests received and reported[237](index=237&type=chunk) - Product revenue growth depends on sales of Olerup SSP, QTYPE, Olerup SBT, and TruSight HLA product lines[238](index=238&type=chunk) - Continued adoption and reimbursement for AlloMap Heart (Medicare rate **$3,240**) and AlloSure Kidney (Medicare rate **$2,841**) are crucial for revenue growth[239](index=239&type=chunk)[241](index=241&type=chunk) - Growth of digital revenues is linked to the successful implementation and support of Ottr and XynQAPI software businesses[245](index=245&type=chunk) - Investment in R&D for new products (HeartCare, KidneyCare) and the timing of R&D expenses (clinical samples, high-cost experiments) are significant factors[246](index=246&type=chunk)[247](index=247&type=chunk) [Contractual Obligations](index=48&type=section&id=Contractual%20Obligations) CareDx, as a smaller reporting company, is exempt from providing detailed contractual obligations information in this report - As a smaller reporting company, CareDx is exempt from providing detailed contractual obligations information[248](index=248&type=chunk) [Off-Balance Sheet Arrangements](index=48&type=section&id=Off-Balance%20Sheet%20Arrangements) CareDx reported no off-balance sheet arrangements as of September 30, 2019 - No off-balance sheet arrangements as of September 30, 2019[249](index=249&type=chunk) [JOBS Act Accounting Election](index=48&type=section&id=JOBS%20Act%20Accounting%20Election) CareDx, an emerging growth company, has irrevocably elected not to use the extended transition period for new accounting standards - CareDx, an emerging growth company, has irrevocably elected not to use the extended transition period for new accounting standards, applying the same standards as other public companies[250](index=250&type=chunk) [Foreign Operations](index=48&type=section&id=Foreign%20Operations) CareDx conducts foreign operations in Sweden, Austria, and Australia, exposing it to foreign currency risks and geopolitical events - Foreign operations are located in Sweden, Austria, and Australia, with global product sales[251](index=251&type=chunk) - Exposed to foreign currency risks (transactions, investments, assets/debts in foreign currencies) and potential adverse effects from unanticipated foreign events[251](index=251&type=chunk)[254](index=254&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) CareDx is exposed to interest rate risk on its cash and cash equivalents, but does not anticipate material risks from changes in interest rates. The company is also subject to foreign currency exchange risk due to operations and sales in multiple countries, with an unfavorable 10% change potentially impacting financial results by $0.1 million and product revenue by $0.6 million for the nine months ended September 30, 2019. No formal hedging program is currently in place - Exposed to interest rate risk on cash and cash equivalents, but no material risks anticipated[253](index=253&type=chunk) - Significant foreign currency exchange risk due to operations in Sweden, Austria, Australia, and global sales, with product revenue primarily denominated in Euro and U.S. dollars[254](index=254&type=chunk) - An unfavorable **10%** change in foreign currency exchange rates would have negatively impacted financial results by **$0.1 million** and product revenue by **$0.6 million** for the nine months ended September 30, 2019[254](index=254&type=chunk) [ITEM 4. Controls and Procedures](index=49&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2019, and concluded they were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the nine months ended September 30, 2019 - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of September 30, 2019[255](index=255&type=chunk) - No material changes in internal control over financial reporting occurred during the nine months ended September 30, 2019[256](index=256&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, equity security sales, and other disclosures not covered in the financial statements [ITEM 1. Legal Proceedings](index=50&type=section&id=ITEM%201.%20Legal%20Proceedings) CareDx may be involved in legal proceedings and claims in the ordinary course of business. While no currently pending matters are believed to have a material adverse effect, legal matters are inherently unpredictable. The company estimates liability when probable and estimable, and has not paid claims related to indemnification obligations to date - The company may face legal proceedings and claims in the ordinary course of business, which are inherently unpredictable[258](index=258&type=chunk) - No currently pending matters are believed to have a material adverse effect on financial position, results of operations, or liquidity[258](index=258&type=chunk) - No claims paid or actions defended related to indemnification obligations to date[258](index=258&type=chunk) [ITEM 1A. Risk Factors](index=50&type=section&id=ITEM%201A.%20Risk%20Factors) This section refers to the Annual Report on Form 10-K for a comprehensive list of risk factors. It highlights new or updated risks related to the integration of Ottr and XynManagement acquisitions, including the potential inability to realize anticipated strategic benefits and cross-selling opportunities. Additionally, risks associated with the Cibiltech Agreement are noted, specifically the failure to obtain reimbursement coverage for KidneyCare iBox - Refers to the Annual Report on Form 10-K for a comprehensive list of risk factors[259](index=259&type=chunk) - New risks include challenges in successfully integrating Ottr and XynManagement acquisitions and realizing anticipated strategic benefits and cross-selling opportunities[260](index=260&type=chunk) - Risks related to the Cibiltech Agreement include the potential failure to obtain reimbursement coverage from payers for KidneyCare iBox, which could impact revenue recognition[261](index=261&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company satisfies tax withholding obligations upon RSU vesting by automatically withholding common stock shares. For September 2019, 1,335 shares were withheld for tax payments at an average price of $21.78 per share - The company withholds common stock shares to satisfy tax withholding obligations upon RSU vesting[262](index=262&type=chunk) Issuer Purchases of Equity Securities (September 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :------------------------------- | :--------------------------- | | September 1, 2019 - September 30, 2019 | 1,335 | $21.78 | [ITEM 3. Defaults Upon Senior Securities](index=51&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities[265](index=265&type=chunk) [ITEM 4. Mine Safety Disclosures](index=51&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Not applicable to the company - Not applicable[266](index=266&type=chunk) [ITEM 5. Other Information](index=51&type=section&id=ITEM%205.%20Other%20Information) No other information was reported under this item - None[267](index=267&type=chunk) [ITEM 6. Exhibits](index=52&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including various corporate documents, equity incentive plans, certifications, and XBRL taxonomy documents - Lists various corporate documents (e.g., Certificate of Incorporation, Bylaws), equity incentive plans, warrant forms, and certifications (CEO/CFO certifications under Sarbanes-Oxley Act)[269](index=269&type=chunk) - Includes XBRL Instance Document and Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[269](index=269&type=chunk) [Signatures](index=54&type=section&id=Signatures) The report is signed by Peter Maag, Chief Executive Officer, and Michael Bell, Chief Financial Officer, on October 31, 2019, certifying its submission - Report signed by Peter Maag (CEO) and Michael Bell (CFO) on October 31, 2019[273](index=273&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-36536 CAREDX, INC. (Exact name of registrant as specified in its charter) Delaware 94-3316839 (State or other jurisdiction of in ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-36536 CAREDX, INC. (Exact name of registrant as specified in its charter) Delaware 94-3316839 (State or other jurisdiction of i ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-36536 CAREDX, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 94-3316839 (State or Other Jurisdiction of Incorpo ...