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Table of Contents

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, 2020
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)
__________________________________________________
Delaware94-3316839
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
1 Tower Place
South San Francisco, California 94080
(Address of principal executive offices and zip code)
(415) 287-2300
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
__________________________________________________
Securities registered pursuant to Section 12(b) of the Act
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.001 per shareCDNAThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
There were 43,784,236 shares of the registrant’s Common Stock issued and outstanding as of April 28, 2020.



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CareDx, Inc.
TABLE OF CONTENTS
Page No.

2

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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CareDx, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
March 31, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$32,191  $38,223  
Accounts receivable22,841  24,057  
Inventory6,947  6,014  
Prepaid and other current assets4,089  3,628  
Total current assets66,068  71,922  
Property and equipment, net5,501  4,430  
Operating leases right-of-use assets17,004  4,730  
Intangible assets, net43,112  45,541  
Goodwill23,857  23,857  
Restricted cash242  256  
Other assets1,000  1,000  
Total assets$156,784  $151,736  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$6,621  $5,506  
Accrued compensation6,127  12,484  
Accrued and other liabilities15,576  16,838  
Total current liabilities28,324  34,828  
Deferred tax liability1,502  1,973  
Common stock warrant liability1,017  6,607  
Deferred payments for intangible assets5,311  5,207  
Operating lease liability, less current portion17,503  2,370  
Other liabilities1,743  1,751  
Total liabilities55,400  52,736  
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock: $0.001 par value; 10,000,000 shares authorized at March 31, 2020 and December 31, 2019; no shares issued and outstanding at March 31, 2020 and December 31, 2019
    
Common stock: $0.001 par value; 100,000,000 shares authorized at March 31, 2020 and December 31, 2019; 43,019,547 shares and 42,498,430 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
42  42  
Additional paid-in capital447,888  437,976  
Accumulated other comprehensive loss(6,910) (5,205) 
Accumulated deficit(339,636) (333,813) 
Total stockholders' equity101,384  99,000  
Total liabilities and stockholders’ equity$156,784  $151,736  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CareDx, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended March 31,
20202019
Revenue:
Testing services revenue$31,442  $21,518  
Product revenue4,695  4,433  
Digital and other revenue2,243  31  
Total revenue38,380  25,982  
Cost of revenue12,392  9,733  
Gross profit25,988  16,249  
Operating expenses:
Research and development10,013  5,614  
Sales and marketing11,723  6,925  
General and administrative10,003  9,106  
Total operating expenses31,739  21,645  
Loss from operations(5,751) (5,396) 
Other income (expense):
Interest income, net96  342  
Change in estimated fair value of common stock warrant liability(405) (3,009) 
Other expense, net(63) (74) 
Total other expense(372) (2,741) 
Loss before income taxes(6,123) (8,137) 
Income tax benefit300  606  
Net loss$(5,823) $(7,531) 
Net loss per share (Note 3):
Basic$(0.14) $(0.18) 
Diluted$(0.14) $(0.18) 
Weighted-average shares used to compute net loss per share:
Basic42,823,427  41,611,399  
Diluted42,823,427  41,611,399  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
CareDx, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In thousands)
Three Months Ended March 31,
20202019
Net loss$(5,823) $(7,531) 
Other comprehensive loss:
Foreign currency translation adjustments, net of tax(1,705) (724) 
Net comprehensive loss$(7,528) $(8,255) 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


CareDx, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share data)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201942,498,430  $42  $437,976  $(5,205) $(333,813) $99,000  
Issuance of common stock under ESPP38,147  —  699  —  —  699  
RSU settlements, net of shares withheld139,552  —  (1,507) —  —  (1,507) 
Issuance of common stock for services3,091  —  66  —  —  66  
Issuance of common stock for cash upon exercise of stock options
44,861  —  155  —  —  155  
Issuance of common stock for cash upon exercise of warrants
295,466  —  6,299  —  —  6,299  
Employee share-based compensation expense   —  4,200  —  —  4,200  
Foreign currency translation adjustment—  —  —  (1,705) —  (1,705) 
Net loss—  —  —  —  (5,823) (5,823) 
Balance at March 31, 202043,019,547  $42  $447,888  $(6,910) $(339,636) $101,384  


Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201841,384,960  $41  $412,010  $(4,278) $(311,845) $95,928  
Issuance of common stock under ESPP31,184  —  341  —  —  341  
RSU settlements, net of shares withheld146,159  —  (2,378) —  —  (2,378) 
Issuance of common stock for services2,112  —  51  —  —  51  
Issuance of common stock for cash upon exercise of stock options
253,347  —  1,365  —  —  1,365  
Issuance of common stock for cash upon exercise of warrants
94,707  —  2,569  —  —  2,569  
Employee share-based compensation expense—  —  6,001  —  —  6,001  
Foreign currency translation adjustment—  —  —  (724) —  (724) 
Net loss—  —  —  —  (7,531) (7,531) 
Balance at March 31, 201941,912,469  $41  $419,959  $(5,002) $(319,376) $95,622  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CareDx, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended March 31,
20202019
Operating activities:
Net loss$(5,823) $(7,531) 
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation4,259  6,053  
Revaluation of common stock warrant liability to estimated fair value405  3,009  
Depreciation and amortization1,619  1,161  
Amortization of right-of-use assets612  372  
Revaluation of contingent consideration to estimated fair value190    
Changes in operating assets and liabilities:
Accounts receivable2,346  (2,782) 
Inventory(1,343) (372) 
Prepaid and other assets(545) (541) 
Operating leases liabilities, net(344) (475) 
Accounts payable1,757  (449) 
Accrued compensation(5,914) (4,249) 
Accrued and other liabilities48  202  
Change in deferred taxes(322) (265) 
Net cash used in operating activities(3,055) (5,867) 
Investing activities:
Purchase of property and equipment, net(1,704) (543) 
Net cash used in investing activities(1,704) (543) 
Financing activities:
Proceeds from issuance of common stock under employee stock purchase plan358  341  
Taxes paid related to net share settlement of restricted stock units(1,507) (2,378) 
Proceeds from exercise of warrants304  78  
Proceeds from exercise of stock options155  1,365  
Principal payments on debt and finance lease obligations(45) (42) 
Contingent payments related to the acquisition of Conexio Genomics Pty Ltd.  (52) 
Net cash used in financing activities(735) (688) 
Effect of exchange rate changes on cash and cash equivalents(552) (87) 
Net decrease in cash, cash equivalents and restricted cash(6,046) (7,185) 
Cash, cash equivalents, and restricted cash at beginning of period38,479  64,808  
Cash, cash equivalents, and restricted cash at end of period$32,433  $57,623  

March 31, 2020December 31, 2019
Cash, Cash Equivalents and Restricted Cash as of:
Cash and cash equivalents$32,191  $38,223  
Restricted cash242  256  
Total cash, cash equivalents and restricted cash at the end of period$32,433  $38,479  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7

Table of Contents
CareDx, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
CareDx, Inc. (“CareDx” or the “Company”) together with its subsidiaries, is a leading precision medicine company focused on the discovery, development and commercialization of clinically differentiated, high-value healthcare solutions for transplant patients and caregivers.  The Company’s headquarters are in South San Francisco, California. The primary operations are in Brisbane, California; Omaha, Nebraska; Fremantle, Australia and Stockholm, Sweden.
The Company’s commercially available testing services consist of AlloSure® Kidney, which is a donor-derived cell-free DNA (“dd-cfDNA”) solution for kidney transplant patients, and AlloMap® Heart, which is a gene expression solution for heart transplant patients. The Company has initiated several clinical studies to generate data on its existing and planned future testing services. The Company also offers high quality products that increase the chance of successful transplants by facilitating a better match between a donor and a recipient of stem cells and organs.
In 2019, the Company began providing digital solutions to transplant centers following the acquisitions of Ottr Complete Transplant Management (“OttrCare”) and XynManagement, Inc. (“XynManagement”).
Testing Services
In October 2017, the Company commercially launched AlloSure Kidney, its proprietary next generation sequencing-based test that measures dd-cfDNA in kidney transplant recipients. The Medicare reimbursement rate for AlloSure Kidney is currently $2,841. AlloSure Kidney has also received payment from private payers on a case-by-case basis, with the first private payer, BCBS of South Carolina, issuing a positive coverage decision in its October 2019 review.
AlloMap Heart has been a covered service for Medicare beneficiaries since January 1, 2006. The Medicare reimbursement rate for AlloMap Heart is currently $3,240. AlloMap Heart has also received positive coverage decisions from many of the largest U.S. private payers.
Clinical Studies
In January 2018, the Company initiated the Kidney Allograft Outcomes AlloSure Kidney Registry study (“K-OAR”), to develop additional data on the clinical utility of AlloSure Kidney for surveillance of kidney transplant recipients. K-OAR is a multicenter, non-blinded, prospective observational cohort study which has enrolled more than 1,500 renal transplant patients who will receive AlloSure Kidney long-term surveillance.
In September 2018, the Company initiated the Surveillance HeartCare Outcomes Registry (“SHORE”). SHORE is a prospective, multi-center, observational registry of patients receiving HeartCare for surveillance. HeartCare combines the gene expression profiling technology of AlloMap Heart with the dd-cfDNA analysis of AlloSure® Heart in one surveillance solution. In August 2019, AlloSure Heart received a positive draft Local Coverage Determination for Medicare coverage.
In February 2019, AlloSure® Lung was made available for lung transplant patients through a compassionate use program while the test is undergoing further studies.
In September 2019, the Company announced the commencement of the Outcomes of KidneyCare on Renal Allografts (“OKRA”) study, which is an extension of K-OAR. OKRA is a prospective, multi-center, observational, registry of patients receiving KidneyCare for surveillance. KidneyCare combines the dd-cfDNA analysis of AlloSure Kidney with the gene expression profiling technology of AlloMap Kidney and the predictive artificial intelligence technology of KidneyCare iBox developing a multimodality surveillance solution. The Company has not yet made any applications to payers for reimbursement coverage of AlloMap Kidney or KidneyCare iBox.
Products
TruSight HLA is a next generation sequencing (“NGS”)-based high resolution typing solution that provides NGS-level resolution to Human Leukocyte Antigen (“HLA”) typing. The Company’s suite of AlloSeq products are commercial NGS-based kitted solutions that the Company acquired as a result of its license agreement with Illumina, Inc. (“Illumina”) . These products include: AlloSeq Tx, a high-resolution HLA typing solution, AlloSeq cfDNA, a surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and AlloSeq HCT, a solution for chimerism testing for stem cell transplant recipients.
Olerup SSP® is used to type HLA alleles, based on the sequence specific primer (“SSP”) technology.  Olerup SBT is a complete product range for sequence-based typing of HLA alleles. QTYPE® enables HLA typing at a low to intermediate resolution for samples that require a fast turnaround time and uses real-time polymerase chain reaction, or PCR methodology.
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Digital and Other
Following the acquisitions of both OttrCare and XynManagement, the Company is a leading provider of transplant patient tracking software (“Ottr software”), as well as of transplant quality tracking and waitlist management solutions. Ottr software provides comprehensive solutions for transplant patient management and enables integration with electronic medical record ("EMR") systems providing patient surveillance management tools and outcomes data to transplant centers. XynManagement provides two unique solutions, XynQAPI software (“XynQAPI”) and Waitlist Management. XynQAPI simplifies transplant quality tracking and Scientific Registry of Transplant Recipients (“SRTR”) reporting. Waitlist Management includes a team of transplant assistants who maintain regular contact with patients on the waitlist to help prepare for their transplant and maintain eligibility.
COVID-19 Outbreak
On January 30, 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak, including the impact associated with preventative and precautionary measures that the Company, other businesses and governments are taking, continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company, but the pandemic may materially affect the Company's financial condition, liquidity and future results of operations.
With hospitals increasingly caring for COVID-19 patients, hospital administrators have chosen to limit, or even defer, non-emergency procedures. Immunosuppressed transplant patients either self-prescribed or were asked to avoid transplant centers and caregiver visits to reduce the risk of contracting COVID-19. With transplant surveillance visits down, the Company experienced a slowdown in testing services volumes in the final weeks of March and during April 2020.
As a response to the COVID-19 outbreak, and to enable immune-compromised transplant patients to continue to have their blood drawn, in late March 2020 the Company launched RemoTraC, a remote home-based blood draw solution using mobile phlebotomy for AlloSure and AlloMap surveillance tests, as well as for other standard monitoring tests. To date, more than 140 transplant centers can offer RemoTraC to their patients and over 2,000 kidney, heart, and lung transplant patients have enrolled. Based on existing and new relationships with partners, the Company has established a nationwide network of more than 10,000 mobile phlebotomists.
In April 2020, the Company partnered with an international consortium, which includes the National Institutes of Health (NIH) and the European Society of Transplantation (ESOT), to initiate the C19TxR registry to provide real-time analytics and insights on transplant patients with COVID-19.
The Company is maintaining its testing, manufacturing, and distribution facilities while implementing specific protocols to reduce contact among employees. In areas where COVID-19 impacts healthcare operations, the Company’s field-based sales and clinical support teams are supporting providers through telephone and online platforms. To reduce the risk to employees and their families from potential exposure to COVID-19, most of the Company’s employees have been required to work from home. The Company has also restricted non-essential business travel to protect the health and safety of its employees, patients, and customers.
Liquidity and Going Concern
The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $339.6 million at March 31, 2020. As of March 31, 2020, the Company had cash and cash equivalents of $32.2 million.
The Company may require additional financing in the future to fund working capital and the Company's future product developments. Additional financing might include issuance of equity securities, debt, or cash. There can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms favorable to the Company. The Company believes its existing cash balance and expected revenues will be sufficient to meet its anticipated cash requirements for the next 12 months.
See Note 14, Subsequent Events, regarding certain liquidity events that occurred after March 31, 2020.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31,
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2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 are reflected below.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and follow the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain notes and other financial information that are normally required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of the Company’s financial information. The condensed consolidated balance sheet as of December 31, 2019 has been derived from audited consolidated financial statements as of that date but does not include all of the financial information required by U.S. GAAP for complete financial statements. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Reclassifications and Changes in Presentation
Certain prior period amounts have been reclassified to conform with the current period presentation, including: (i) combined presentation of cost of testing services, cost of product, and cost of digital, and (ii) separate presentation of gross profit. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to transaction price estimates used for testing services revenue; standalone fair value of digital revenue performance obligations; accrued expenses for clinical studies; inventory valuation; the fair value of issued common stock warrants and embedded derivatives; the fair value of assets and liabilities acquired in a business combination or an assets acquisition (including identifiable intangible assets acquired); the fair value of contingent consideration recorded in connection with a business combination; the grant date fair value assumptions used to estimate stock-based compensation expense; income taxes; impairment of long-lived assets and indefinite-lived assets (including goodwill); and legal contingencies. Actual results could differ from those estimates.
Concentrations of Credit Risk and Other Risks and Uncertainties
For the three months ended March 31, 2020 and 2019, approximately 53% and 55% respectively, of total revenue was derived from Medicare. No other payers or customers represented more than 10% of total revenue for these periods.
As of March 31, 2020 and December 31, 2019, approximately 20% and 36%, respectively, of accounts receivable was due from Medicare. No other payer or customer represented more than 10% of accounts receivable on either March 31, 2020 or December 31, 2019.
Leases
Effective January 1, 2019, the Company adopted Accounting Standard Codification (“ASC”) Topic 842, Leases using the optional transition method and applied the standard only to leases that existed at that date. The Company determines if an arrangement is or contains a lease at contract inception. A right-of-use (“ROU”) asset, representing the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease, are recognized on the condensed consolidated balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the ROU asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet.
The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate.
The Company’s leases have remaining terms of 0.25 years to 8.92 years, some of which include options to extend the lease term.
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Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other – Internal – Use Software (ASC Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 became effective for fiscal years beginning after December 15, 2019 and interim periods therein. Early adoption of ASU 2018-15 is permitted including adoption in any interim period. The Company adopted the standard on January 1, 2020. The adoption of the new standard did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (ASC Topic 820) (“ASU 2018-13”), which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. ASU 2018-13 is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020, and all annual and interim reporting periods thereafter. The amendments on changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company adopted the standard on January 1, 2020. The adoption of the new standard did not have a significant impact on the Company's condensed consolidated financial statements.
In March 2017, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASC Topic 326)(“ASU 2016-13”), which amends the FASB’s guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model known as the current expected credit loss (“CECL”) model, which is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected credit losses, which the FASB believes will result in more timely recognition of such losses. The new CECL standard is effective for public companies for annual reporting periods beginning after December 15, 2019, and interim periods therein. ASU 2016-13 has a greater impact on banks. However, nonbank entities that have financial instruments or other assets such as trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities are subject to the CECL model. The Company adopted the standard on January 1, 2020. The adoption of the new standard did not have a significant impact on the Company's condensed consolidated financial statements.
3. NET LOSS PER SHARE
Basic and diluted net loss per share have been computed by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of common share equivalents as their effect would have been antidilutive.
The following tables set forth the computation of the Company’s basic and diluted net loss per share (in thousands, except shares and per share data):
Three Months Ended March 31,
20202019
Numerator:
Net loss used to compute basic and diluted net loss per share$(5,823) $(7,531) 
Denominator:
Weighted-average shares used to compute basic and diluted net loss per share
42,823,427  41,611,399  
Net loss per share:
Basic and diluted$(0.14) $(0.18) 
The following potentially dilutive securities have been excluded from diluted net loss per share as at March 31, 2020 and 2019 because their effect would be antidilutive:
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Three Months Ended March 31,
20202019
Shares of common stock subject to outstanding options2,845,862  2,536,412  
Shares of common stock subject to outstanding common stock warrants49,006  530,627  
Restricted stock units1,502,012  1,034,484  
Total common stock equivalents4,396,880  4,101,523  

4. FAIR VALUE MEASUREMENTS
The Company records its financial assets and liabilities at fair value.  The carrying amounts of certain financial instruments of the Company, including cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.  The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1: Inputs that include quoted prices in active markets for identical assets and liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis, as of March 31, 2020 and December 31, 2019 (in thousands):
March 31, 2020
Fair Value Measured Using 
(Level 1)(Level 2)(Level 3)Total
Balance
Assets    
Money market funds$22,761  $  $  $22,761  
Liabilities
Common stock warrant liability$  $  $1,017  $1,017  

December 31, 2019
 Fair Value Measured Using 
 (Level 1)(Level 2)(Level 3)Total
Balance
Assets    
Money market funds$29,177  $  $  $29,177  
Liabilities
Common stock warrant liability$  $  $6,607  $6,607  
The following table presents the issuances, exercises, changes in fair value and reclassifications of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis (in thousands):
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 (Level 3)
 Common Stock Warrant Liability
Balance as of December 31, 2019$6,607  
Exercise of warrants(5,995) 
Change in estimated fair value405  
Balance as of March 31, 2020$1,017  
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period.  There were no transfers between Level 1, Level 2 and Level 3 categories during the periods presented.
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework.  The valuation methodologies used for the Company’s instruments measured at fair value and their classification in the valuation hierarchy are summarized below:
Money market funds – Investments in money market funds are classified within Level 1. Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. At March 31, 2020 and December 31, 2019, money market funds were included as cash and cash equivalents in the condensed consolidated balance sheets.
Common stock warrant liability – The Company utilizes a binomial-lattice pricing model (the “Monte Carlo Simulation Model”) that involves a market condition simulation to estimate the fair value of the warrants.  The application of the Monte Carlo Simulation Model requires the use of a number of complex assumptions including the Company’s stock price, expected life of the warrants, stock price volatility determined from the Company’s historical stock prices and stock prices of peer companies in the diagnostics industry, and risk-free rates based on the implied yield currently available in the U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the warrants.  Increases (decreases) in the assumptions discussed above result in a directionally similar impact to the fair value of the common stock warrant liability.
Common Stock Warrant Liability Valuation Assumptions:
March 31, 2020December 31, 2019
Private Placement Common Stock Warrant Liability
Stock Price$21.83  $21.57  
Exercise Price$1.12  $1.12  
Remaining term (in years)3.043.29
Volatility83.00%81.00%
Risk-free interest rate0.29%1.62%

5. BUSINESS COMBINATIONS
OttrCare
On May 7, 2019, the Company acquired 100% of the outstanding common stock of OttrCare for total consideration of $16.1 million. OttrCare was formed in 1993 and is a leading provider of organ transplant patient tracking software. The Ottr software provides comprehensive solutions for transplant patient management and enables integration with EMR systems providing patient surveillance management tools and outcomes data to transplant centers.
The Company accounted for the transaction as a business combination using the acquisition method of accounting. Results of operations of OttrCare have been included with the Company’s results since the date of the acquisition. Acquisition-related costs of $0.6 million associated with the acquisition were expensed as incurred, and classified as part of general and administrative expenses in the condensed consolidated statement of operations.
Goodwill of $10.2 million arising from the acquisition primarily consists of synergies from integrating the Ottr software with transplant center EMR systems and the current testing solutions offered by the Company. Goodwill synergies also arise from acquired workforce know-how of transplant centers workflow. None of the goodwill is expected to be deductible for income tax purposes. All of the goodwill has been assigned to the Company’s existing operating segment.
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The following table summarizes the consideration paid for OttrCare and the provisional amounts of the assets acquired and liabilities assumed recognized at their estimated fair value at the acquisition date (in thousands):
Total
Consideration
Cash$16,037  
Accrued purchase consideration111  
Total consideration$16,148  
Recognized amounts of identifiable assets acquired and
liabilities assumed
Current assets$1,525  
Fixed assets35  
Identifiable intangible assets6,600  
Current liabilities(2,210) 
Total identifiable net assets acquired5,950  
Goodwill10,198  
Total consideration$16,148  
The allocation of the purchase price to assets acquired and liabilities assumed was based on the Company’s best estimate of the fair value of such assets and liabilities as of the acquisition date.
The fair value of the acquired current liabilities as of June 30, 2019 included a preliminary deferred revenue balance of $2.3 million. During the three months ended September 30, 2019, the Company recorded an adjustment of $0.5 million to the initial valuation amount of deferred revenue, decreasing its balance to $1.8 million as of the acquisition date. This change is a result of updated assumptions and methodologies for acquired software maintenance contracts. As part of this adjustment, goodwill decreased by approximately $0.5 million.
At the acquisition date the Company estimated net deferred tax assets of approximately $0.2 million arising from temporary differences related to assets acquired and liabilities assumed. The Company estimated that OttrCare had net operating losses (“NOLs”) carryforward of approximately $6.9 million, $4.3 million of which will begin to expire in 2033, and the remaining $2.6 million will be carried forward indefinitely. A full valuation allowance of $0.2 million was recognized as of the acquisition date resulting in no impact from deferred taxes to OttrCare’s opening balance. An Internal Revenue Code Section 382 study for NOLs was finalized during the third quarter of 2019 and deferred taxes acquired are finalized as of December 31, 2019.
The following table summarizes the fair values of the intangible assets acquired as of the acquisition date ($ in thousands):
Estimated Fair ValueEstimated Useful Lives (Years)
Customer relationships$4,200  15
Developed technology2,300  10
Trademark100  2
Total$6,600  
Customer relationships acquired by the Company represent the fair value of future projected revenue that is expected to be derived from sales of OttrCare’s products to existing customers. The customer relationships’ fair value has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated by the customer relationships, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place. The economic useful life was determined based on the distribution of the present value of the cash flows attributable to the intangible asset.
The acquired developed technology represents the fair value of OttrCare’s proprietary software. The trademark acquired consists primarily of the OttrCare brand and markings. The fair value of both the developed technology and the trademark were determined using the relief-from-royalty method under the income approach. This method considers the value of the asset to be the value of the royalty payments from which the Company is relieved of due to its ownership of the asset. The royalty rates of 15.0% and 1.0% were used to estimate the fair value of the developed technology and the trademark, respectively.
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The Company utilized a discount rate of 14.5% in estimating the fair value of these three intangible assets. As of March 31, 2020, OttrCare’s digital revenue of $1.7 million was included in the Company’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2020. Unaudited supplemental pro forma information is not disclosed because it is considered immaterial.
XynManagement
On August 26, 2019, the Company acquired 100% of the outstanding common stock of XynManagement for total cash consideration of $2.0 million. As a result of the acquisition, the Company recognized contingent consideration of $1.4 million, including liability and equity components, goodwill of $1.7 million and intangible assets of $2.1 million. Goodwill synergies arise from acquired workforce know-how of transplant centers workflow. The goodwill for this acquisition is not deductible for income tax purposes. The contingent consideration relates to potential future cash payments upon reaching specified revenue and non-financial targets. The fair value of the contingent consideration was determined using the Monte Carlo Simulation Model.
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired.
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. There were no indicators of impairment in the three months ended March 31, 2020. The following table presents details of the Company's goodwill for the three months ended March 31, 2020 (in thousands):
Total
Balance as of January 1, 2020$23,857  
Goodwill acquired  
Balance as of March 31, 2020$23,857  
Intangible Assets
The following tables present details of the Company’s intangible assets as of March 31, 2020 ($ in thousands):
March 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Foreign
Currency
Translation
Net Carrying
Amount
Weighted Average Remaining
Useful Life
(In Years)
Intangible assets with finite lives:
Acquired and developed technology$29,106  $(7,063) $(2,480) $19,563  9.4
Customer relationships18,168  (3,709) (2,051) 12,408  11.6
Commercialization rights8,079  (433)   7,646  9.4
Trademarks and tradenames2,360  (663) (305) 1,392  10.4
Total intangible assets with finite lives$57,713  $(11,868) $(4,836) $41,009  
Acquired in-process technology2,103  —  —  2,103  
Total intangible assets$59,816  $(11,868) $(4,836) $43,112  
The following table presents details of the Company’s intangible assets as of December 31, 2019 ($ in thousands):
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12/31/2019
Gross Carrying AmountAccumulated AmortizationForeign Currency TranslationNet Carrying AmountWeighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Acquired and developed technology$29,106  $(6,473) $(1,852) $20,781  8.2
Customer relationships18,168  (3,397) (1,498) 13,273  10.1
Commercialization rights8,079  (231)   7,848  9.7
Trademarks and tradenames2,360  (618) (206) 1,536  9.1
Total intangible assets with finite lives$57,713  $(10,719) $(3,556) $43,438  
Acquired in-process technology2,103  —  —  2,103  
Total intangible assets$59,816  $(10,719) $(3,556) $45,541  
Acquisition of intangible assets
Cibiltech License and Commercialization Agreement
Effective April 30, 2019, the Company entered into a license and commercialization agreement (the “Cibiltech Agreement”) with Cibiltech SAS (“Cibiltech”). Cibiltech is a French company engaged in the development and support of predictive medicine and artificial intelligence software, services and technology, with an emphasis on personalized patient care and clinical research, including its proprietary software and service offering known in the U.S. as KidneyCare iBox for the predictive analysis of post-transplantation kidney allograft loss. The Cibiltech Agreement provides the Company with an irrevocable, non-transferable right to commercialize Cibiltech’s proprietary software in the field of transplantation in the U.S. for a period of ten years. The Company estimated the fair value of the acquired commercialization rights intangible asset based on expected contractual payments discounted to present value using a discount rate of 6%. In September 2019, the Company initiated the OKRA clinical study, which incorporates KidneyCare iBox. On such date, the Company commenced amortization of the acquired commercialization intangible asset.
On July 26, 2019, pursuant to the Cibiltech Agreement, the Company purchased $1.0 million of convertible preferred shares of Cibiltech, which is recorded in other assets. The Company does not have a significant influence on Cibiltech’s operations. The net carrying amount of intangible assets and the related amortization expense of intangible assets may change due to the effects of foreign currency fluctuations as a result of acquiring an entity with a functional currency other than the U.S. dollar.
Amortization expense was $1.1 million and $0.6 million for the three months ended March 31, 2020 and 2019, respectively.  For the three months ended March 31, 2020, expenses of $0.8 million and $0.3 million were amortized to cost of revenue and sales and marketing expense, respectively.  For the three months ended March 31, 2019, expenses of $0.3 million and $0.3 million were amortized to cost of product and sales and marketing expense, respectively. 
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of March 31, 2020 (in thousands):
Years Ending December 31,Cost of
Revenue
Sales and
Marketing
Total
Remainder of 2020$2,341  $1,048  $3,389  
20213,081  1,209  4,290  
20223,081  1,192  4,273  
20233,081  1,192  4,273  
20243,081  1,192  4,273  
Thereafter12,547  7,964