PERSONALIS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 filed with theSecurities and Exchange Commission (the "SEC") onFebruary 24, 2022 (the "Annual Report"). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the sections titled "Special Note Regarding Forward-Looking Statements" for a discussion of forward-looking statements and in Part II, Item 1A, "Risk Factors" for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report.
Overview
Personalis' strategy is to develop some of the world's most advanced genetic tests for cancer. Today our tests are routinely used by many of the largest oncology-focused pharmaceutical companies for analysis of patient samples from their clinical trials. More recently, we have also begun to work with a growing number of leading cancer centers for clinical diagnostic use of our tests. We believe that adoption and publication by these key opinion leaders will advance standard of care for cancer patients and drive eventual broad use clinically. We believe that our tests can meaningfully improve outcomes for cancer patients, and estimate that an annual market opportunity of approximately$30 billion could materialize in theU.S. in the future.
Recent updates specific to our planned entrance into the clinical diagnostic market follows in the next four paragraphs.
InDecember 2021 , we launched NeXT Personal, a next-generation, liquid biopsy test designed to detect and quantify minimal residual disease ("MRD") and recurrence in patients previously diagnosed with cancer. NeXT Personal is designed to deliver industry-leading MRD sensitivity down to the 1 part-per-million range, an approximately 10- to 100-fold improvement over other available technologies. NeXT Personal leverages whole genome sequencing of a patient's tumor to identify up to 1,800 specially-selected somatic variants that are subsequently used to create a personalized liquid biopsy panel for each patient. We believe this enables earlier detection across a broader variety of cancers and stages, including typically challenging early stage, low mutational burden, and low-shedding cancers. NeXT Personal is also designed to simultaneously detect and quantify clinically relevant mutations in ctDNA that may be used in the future to help guide therapy, when cancer is detected. These include known targetable cancer mutations, drug resistance mutations, and new variants which can emerge and change over time, especially under therapeutic pressure. We consider this approach not just "tumor-informed", but "comprehensively tumor-informed". Our ultimate goal is not just to detect cancer, but to provide key information that is actionable by oncologists over the entire course of the patient's disease. We believe this can be better for patients, more informative for pharmaceutical customers, and a larger business opportunity for us. NeXT Personal is currently available as a research use only ("RUO") test and has not yet been validated as a laboratory developed test ("LDT"). In other words, NeXT Personal is not yet offered directly to cancer patients. Certain pharmaceutical customers have ordered NeXT Personal as an RUO test and we have generated revenue upon delivery of these tests. Early in 2020, we launched NeXT Dx Test, a comprehensive genomic solid tumor test that enables physicians to identify potential therapies, evidence of drug resistance, and clinical trial options for cancer patients. Our NeXT Dx Test is one of the first cancer diagnostic platforms to profile approximately 20,000 genes in both the tumor exome and transcriptome, providing a comprehensive genomic testing solution that goes beyond many existing cancer diagnostic panels that focus on a few hundred genes. The NeXT Dx Test includes advanced analytics to provide a diagnostic report on genetic alterations in medically important cancer genes, as well as emerging immunotherapy composite biomarkers of medical importance. Immunotherapy-related biomarkers such as microsatellite instability ("MSI") status and tumor mutational burden ("TMB") are included in the clinical report. We are currently in the process of completing a validation study on an updated version of NeXT Dx as a clinical test and anticipate revenue from this test in the second half of 2022. We plan to submit data to the Palmetto MolDx technology assessment process and anticipate a favorable reimbursement ruling from MolDx in early 2023. An important component of our commercial strategy is to work with world-class medical institutions. To that end, in the fourth quarter of 2021, we announced a collaboration with theMayo Clinic and in the first quarter of 2022, we announced one with theMoores Cancer Center atUC San Diego Health . We entered these collaborations to provide clinical diagnostic testing and analysis services using our tissue-based NeXT Dx Test and may also use our liquid biopsy NeXT Personal test in the future. We have begun to test clinical patient samples from theMoores Cancer Center atUC San Diego Health , and are excited about the opportunity to work with these renowned cancer centers. Given the advanced nature of our NeXT Dx Test, we believe it is a good fit for high-end cancer centers, which have a dual mandate for both clinical care and research. If these key opinion leaders have a positive experience using our tests, we are optimistic that this will also support broader use of our platform by other clinicians in the future. Additionally, we have initiated the hiring of a national clinical sales force that plans to actively engage with oncologists and surgeons at academic medical centers and community oncology practices. We also have begun building out critical support functions for our clinical testing business, such as customer service and billing. We have the capacity to sequence and analyze approximately 200 trillion bases of DNA per week in our facility. We believe that capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to 21 --------------------------------------------------------------------------------
scale further as demand increases and in support of our NeXT Liquid Biopsy, NeXT Dx Test and NeXT Personal offerings. To date, we have sequenced more than 260,000 human samples, of which more than 150,000 were whole human genomes.
In parallel with the development of our platform technology, we have also pursued business within the population sequencing market, and we have provided whole genome sequencing services under contract with theU.S. Department of Veterans Affairs Million Veteran Program (the "VA MVP"), which has enabled us to innovate, scale our operational infrastructure, and achieve greater efficiencies in our lab. The VA MVP is the largest population sequencing effort inthe United States and we have delivered over 150,000 whole human genome sequence datasets to the VA MVP to date. The cumulative value of orders received from the VA MVP since inception is$185.7 million , all of which we had recognized as revenue as ofJune 30, 2022 . InSeptember 2021 , we received a task order from the VA MVP with a value of$9.7 million , which was significantly less than in prior years. At that time, we expected the reduced order amount to be followed by a formal request for proposal ("RFP") process and a potential new contract to be awarded sometime late in the third quarter of 2022. We are aware that the VA MVP recently initiated a request for information process seeking potential sources to provide high-throughput whole genome sequencing services, and that the VA MVP more recently issued a pre-solicitation notice announcing its intent to award a firm-fixed price, requirements contract for such services. However, we are not certain whether there will be a RFP process in 2022, and the pre-solicitation notice does not obligate the VA MVP to issue a solicitation for proposals this year. InAugust 2021 , we announced that we will relocate our corporate headquarters fromMenlo Park to a new facility inFremont, California . We plan to begin moving into the new facility in the third quarter of this year. We signed a 13.5-year lease for the 100,000 square foot facility, which is approximately double the amount of space in our currentMenlo Park location. The new facility is intended to allow for expansion of our laboratory for clinical testing to support biopharma customers, clinical diagnostic testing and pursuit ofU.S. Food and Drug Administration (the "FDA") approval for our tests. In addition, the new space is intended to support the expansion of research and development efforts to bring leading edge products and services to the marketplace. The new facility will also provide more office space for our selling, general and administrative workforce. Our operations have been impacted, and may be impacted in the future, by the ongoing COVID-19 pandemic. For example, the previous shelter-in-place order and health orders negatively impacted productivity, disrupted our business, and slowed research and development activities due to limited access to our laboratory space that would otherwise be used by our research and development group, and, to the extent such orders return in similar or more stringent form, they may continue to cause such effects on our operations. The COVID-19 pandemic has also disrupted, and may disrupt in the future, the ability of our suppliers to fulfill our purchase orders in a timely manner or at all. Additionally, we are aware of increased demand in the market for certain consumables used in COVID-19 test kits and vaccines. We use such consumables in our operations, and we have faced, and may face in the future, difficulties in acquiring such consumables if our suppliers prioritize orders related to COVID-19. Several of our customers have been delayed in sending us samples due to the inability to collect or ship samples during the COVID-19 pandemic, and these and additional customers may be disrupted from collecting samples or sending purchase orders and samples to us in the future. While authorities in many areas have lifted or relaxed pandemic-related restrictions, in some cases they have subsequently re-imposed various restrictions after observing an increased rate of COVID-19 cases as the global COVID-19 pandemic continues to evolve and to present serious health risks. There is no guarantee when or if all such restrictions and recommendations will be eliminated, such that we and our customers, manufacturers and suppliers will be able to safely resume operations consistent with our pre-COVID-19 operations. The full extent of the impact of the COVID-19 pandemic on our business, operations and plans remains uncertain and will depend on future developments that cannot be predicted at this time. Such developments include the continued spread of the Omicron variant and subvariants in theU.S. and other countries and the potential emergence of other SARS-CoV-2 variants or subvariants that may prove especially contagious or virulent, the ultimate duration of the pandemic and the resulting impact on our business and other third parties with whom we do business, and the effectiveness of actions taken globally to contain and treat the disease.
Components of Operating Results
Revenue
We derive our revenue primarily from sequencing and data analysis services to
support the development of next-generation cancer therapies and to support
large-scale genetic research programs. We support our customers by providing
high-accuracy, validated genomic sequencing tests with advanced analytics. Many
of these analytics are related to state-of-the-art biomarkers, including those
relevant to immuno-oncology therapeutics such as checkpoint inhibitors.
Our revenue is primarily generated through contracts with companies in the
pharmaceutical industry, healthcare organizations, and government entities. Our
ability to increase revenue will depend on our ability to further penetrate this
market. To do this, we are developing a growing set of state-of-the-art services
and products, advancing our operational infrastructure, expanding our
international presence, building our regulatory credentials, and expanding our
targeted marketing efforts. We sell through a small direct sales force. We also
anticipate increasing our revenue in the future through entrance into the
clinical diagnostics market and have begun building our regulatory, clinical,
and reimbursement capabilities, including hiring a national clinical sales
force.
Since 2018, we have derived a substantial portion of our revenue from sales of
our DNA sequencing and data analysis services to the VA MVP. However, we
currently do not anticipate deriving such substantial portions of our revenue
from the VA MVP going forward.
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We have one reportable segment from the sale of sequencing and data analysis
services. Most of our revenue to date has been derived from sales in the United
States .
Costs and Expenses
Cost of Revenue
Cost of revenue consists of raw materials costs, personnel costs (salaries,
bonuses, stock-based compensation, payroll taxes, and benefits), laboratory
supplies and consumables, depreciation and maintenance on equipment, and
allocated facilities and information technology ("IT") costs. We expect cost of
revenue to increase as our revenue grows, and in the short term cost of revenue
may outpace revenue growth as we invest in expanding our laboratory capacity,
including additional costs associated with our future laboratory in Fremont,
California . Over time the cost per sample processed is expected to decrease due
to economies of scale we may gain as volume increases, automation initiatives,
and other cost reductions.
Research and Development Expenses
Research and development expenses consist of costs incurred for the research and development of our services and products and costs related to conducting studies and collaborations with partners to validate the clinical utility of our offerings. These expenses consist primarily of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, costs of processing samples for research purposes, depreciation and maintenance on equipment, and allocated facilities and IT costs. We include in research and development expenses the costs to further develop software we use to operate our laboratory, analyze the data it generates, and automate our operations.
We expense our research and development costs in the period in which they are incurred. We expect to increase our research and development expenses as we continue to develop new services and products and expand collaborations for clinical validation to secure reimbursement opportunities.
Selling, General and Administrative Expenses
Selling expenses consist of personnel costs (salaries, commissions, bonuses, stock-based compensation, payroll taxes, and benefits), customer support expenses, direct marketing expenses, and market research. Our general and administrative expenses include costs for our executive, accounting, finance, legal, and human resources functions. These expenses consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), corporate insurance, audit and legal expenses, consulting costs, and allocated facilities and IT costs. We expense all selling, general and administrative costs as incurred. We expect our selling expenses will continue to increase in absolute dollars, primarily driven by our efforts to expand our commercial capability and to expand our brand awareness and customer base through targeted marketing initiatives with an increased presence both within and outsidethe United States . We expect general and administrative expenses to increase as we scale our operations and incur additional costs associated with ramping up our new headquarters facility inFremont, California .
Interest Income and Interest Expense
Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments. Interest expense in 2022 is the recognition of imputed interest on noninterest bearing loans.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency exchange gains and losses, and realized gains or losses associated with sales of marketable securities. We expect our foreign currency exchange gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.
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--------------------------------------------------------------------------------Results of Operations
The following sets forth, for the periods presented, our unaudited condensed
consolidated statements of operations and selected financial data (in thousands,
except share and per share data):
Three Months Ended June 30 ,
Six Months Ended
2022 2021 2022 2021
Revenue $ 18,240 $ 21,670 $ 33,467 $ 42,551
Costs and expenses
Cost of revenue 13,959 13,502 24,908 26,956
Research and development 16,288 11,687 33,386 21,183
Selling, general and administrative 15,874 11,428 31,360 21,849
Total costs and expenses 46,121 36,617 89,654 69,988
Loss from operations (27,881 ) (14,947 ) (56,187 ) (27,437 )
Interest income 349 103 493 198
Interest expense (50 ) (65 ) (109 ) (65 )
Other income (expense), net 50 (36 ) 69 (48 )
Loss before income taxes (27,532 ) (14,945 ) (55,734 ) (27,352 )
Provision for income taxes 14 8 21 5
Net loss $ (27,546 ) $ (14,953 ) $ (55,755 ) $ (27,357 )
Net loss per share, basic and diluted $ (0.60 ) $ (0.34 ) $ (1.23 ) $ (0.63 )
Weighted-average shares outstanding,
basic and diluted 45,637,838 43,960,794 45,316,795 43,113,195
June 30, 2022 December 31, 2021
Cash and cash equivalents, and short-term investments $ 233,490 $ 287,064
Working capital 218,534 286,918
Total assets 357,979 396,528
Total debt 1,745 3,494
Long-term obligations 51,841 54,914
Total liabilities 93,347 86,227
Total stockholders' equity 264,632 310,301
Revenue
The following table shows revenue by customer type (in thousands):
Three Months Ended June 30, Change Six Months Ended June 30, Change
2022 2021 2022 2021
VA MVP $ 4,055 $ 13,507 (70%) $ 7,556 $ 26,717 (72%)
All other customers 14,185 8,163 74% 25,911 15,834 64%
Total revenue $ 18,240 $ 21,670 (16%) $ 33,467 $ 42,551 (21%)
The following table shows concentration of revenue by customer:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Natera, Inc. 38% * 33% *
VA MVP 22% 62% 23% 63%
Pfizer Inc. * 15% * 14%
* Less than 10% of revenue
VA MVP
The decreases of $9.5 million and $19.2 million in revenue from the VA MVP in
the second quarter and first six months of 2022, respectively, compared to the
same periods in 2021 were primarily due to a decrease in the volume of samples
we tested in these periods. As of June 30, 2022 , we have fulfilled all orders
received from the VA MVP under the existing contract.
The recognition of significant revenue from the VA MVP in future periods is
contingent on receipt of a new contract with the VA MVP and it may not award us
a new contract. Further, the value of any such potential new contract may be
lower than our historical contracted orders and/or the scope or nature of the
services required under any new contract may change such that we are unable to
serve the VA MVP in the future. The most recent order received from the VA MVP
in September 2021 had a value of $9.7 million , which represented a substantial
decline compared to orders received prior to that point. At that time, we
expected the reduced order amount
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to be followed by a formal RFP process and a potential new contract to be
awarded sometime late in the third quarter of 2022. We are aware that the VA MVP
recently initiated a request for information process seeking potential sources
to provide high-throughput whole genome sequencing services, and that the VA MVP
more recently issued a pre-solicitation notice announcing its intent to award a
firm-fixed price, requirements contract for such services. However, we are not
certain whether there will be a RFP process in 2022, and the pre-solicitation
notice does not obligate the VA MVP to issue a solicitation for proposals.
All other customers
The increase of$6.0 million in revenue from all other customers in the second quarter of 2022 compared to the second quarter of 2021 was driven primarily by an increase of$6.5 million in revenue from Natera, Inc. ("Natera") due to increased sample receipts under our agreement to provide advanced tumor analysis for use in Natera's MRD testing offerings. This increase was partially offset by a$0.5 million decline in revenue from our pharmaceutical customers due to lower sample receipts during the quarter. Revenue derived from our NeXT Platform services and products, which includes revenue from Natera, was$10.9 million in the second quarter of 2022, compared to$5.0 million in the second quarter of 2021, an increase of$5.9 million . The increase of$10.1 million in revenue from all other customers during the first six months of 2022 compared to the same period in 2021 was driven primarily by an increase of$10.4 million in revenue from Natera due to increased sample receipts during the period, partially offset by a$0.3 million decline in revenue from our pharmaceutical customers due to lower sample receipts during the period. Revenue derived from our NeXT Platform products, which includes revenue from Natera, was$18.7 million in the first six months of 2022, compared to$9.3 million in the first six months of 2021, an increase of$9.4 million . Costs and Expenses Three Months Ended June 30, Change Six Months Ended June 30, Change 2022 2021 2022 2021 (in thousands) (in thousands) Cost of revenue$ 13,959 $ 13,502 3%
16,288 11,687 39% 33,386 21,183 58%
Selling, general and 39% 44%
administrative 15,874 11,428 31,360 21,849
Total costs and expenses
$ 89,654 $ 69,988 28% Cost of revenue The$0.5 million increase in cost of revenue in the second quarter of 2022 compared to the second quarter of 2021, despite lower revenue, was primarily due to higher fixed laboratory costs, including labor, equipment, and facilities costs. Higher indirect supplies costs also contributed to the increase as Natera and pharmaceutical customer orders require more supplies to process as compared to VA MVP orders. Specific components of the increase were a$1.2 million increase in laboratory supplies and consumables, a$0.8 million increase in labor costs due to higher headcount, a$0.7 million increase in depreciation and maintenance on lab equipment, and a$0.2 million increase in other costs, partially offset by a$2.4 million decrease in direct material costs due to a more favorable mix of customer orders during the period. The$2.0 million decrease in cost of revenue in the first six months of 2022 compared to the same period in 2021 was primarily due to lower levels of revenue, partially offset by higher fixed laboratory costs, including labor, equipment, and facilities costs. Higher indirect supplies costs also contributed to the increase as Natera and pharmaceutical customer orders require more supplies to process as compared to VA MVP orders. Specific components of the decrease were a$6.0 million decrease in direct material costs due to lower revenue levels and a more favorable mix of customer orders during the period, a$1.0 million decrease in costs due to greater usage of our laboratory capacity for research and development activities, partially offset by a$2.0 million increase in labor costs due to higher headcount, a$1.8 million increase in laboratory supplies and consumables, and a$1.2 million increase in depreciation and maintenance on lab equipment.
Research and development
The increases of
Specific components of the$4.6 million increase in the second quarter of 2022 compared to the second quarter of 2021 were a$2.5 million increase in personnel-related costs primarily related to increased headcount, a$0.8 million increase in sample processing costs incurred in our laboratory for new service and product development, a$0.8 million increase in IT and fixed facilities costs, and a$0.5 million increase in depreciation and maintenance on research and development equipment. Specific components of the$12.2 million increase in the first six months of 2022 compared to the same period in 2021 were a$6.4 million increase in personnel-related costs primarily related to increased headcount, a$3.4 million increase in sample processing 25 -------------------------------------------------------------------------------- costs incurred in our laboratory for new service and product development, a$1.6 million increase in IT and fixed facilities costs, a$0.6 million increase in depreciation and maintenance on research and development equipment, and a$0.2 million increase in other costs.
Selling, general and administrative
The increases of
Specific components of the$4.4 million increase in the second quarter of 2022 compared to the second quarter of 2021 were a$2.1 million increase in personnel-related costs related to increased headcount, a$1.3 million increase in facilities costs driven by our newFremont facility, a$0.7 million increase in professional services (including corporate insurance, audit fees, and legal expenses), and a$0.3 million increase in other sales-related activities such as travel. Specific components of the$9.5 million increase in the first six months of 2022 compared to the same period in 2021 were a$4.9 million increase in personnel-related costs related to increased headcount, a$2.7 million increase in facilities costs driven by our newFremont facility, and a$1.9 million increase in professional services (including corporate insurance, audit fees, and legal expenses).
Interest Income, Interest Expense, and Other Income (Expense), Net
Three Months Ended June 30, Change Six Months Ended June 30, Change
2022 2021 2022 2021
Interest income $ 349 $ 103 239% $ 493 $ 198 149%
Interest expense (50 ) (65 ) (23%) (109 ) (65 ) 68%
Other income (expense), net 50 (36 ) 69 (48 )
Total $ 349 $ 2 $ 453 $ 85 Interest income and interest expense
The increases in interest income in the second quarter and first six months of 2022 compared to the same periods in 2021 were due to increased yields on our investments. Interest expense in all periods presented was the recognition of imputed interest on noninterest bearing loans.
Other income (expense), net
Other income (expense), net during the periods presented consisted mainly of foreign currency remeasurements.
Liquidity and Capital Resources
The following tables present selected financial information and cash flow information (in thousands):
June 30, 2022 December 31, 2021
Cash and cash equivalents, and short-term investments $ 233,490 $ 287,064
Property and equipment, net 47,585 19,650
Contract liabilities 356 3,982
Working capital 218,534 286,918
Six Months Ended June 30,
2022 2021
Net cash used in operating activities $ (38,706 ) $ (37,674 )
Net cash provided by (used in) investing activities 19,860 (129,649 )
Net cash provided by financing activities 95 168,859
From our inception throughJune 30, 2022 , we have funded our operations primarily from$279.0 million in net proceeds from our follow-on equity offerings inAugust 2020 andJanuary 2021 ,$144.0 million in net proceeds from our IPO inJune 2019 , and$89.6 million from issuance of redeemable convertible preferred stock, as well as cash from operations and debt financings. As ofJune 30, 2022 , we had cash and cash equivalents of$86.7 million and short-term investments of$146.8 million . We have incurred net losses since our inception. We anticipate that our current cash and cash equivalents and short-term investments, together with cash provided by operating activities, are sufficient to fund our near-term capital and operating needs for at least the next 12 months. We have based these future funding requirements on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. If our available cash balances and anticipated cash flow from operations are 26 -------------------------------------------------------------------------------- insufficient to satisfy our liquidity requirements, including because of lower demand for our services or other risks described in this Quarterly Report on Form 10-Q, such as the ongoing COVID-19 pandemic, we may seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing. We filed a prospectus supplement inJanuary 2022 pursuant to which we could offer and sell additional shares of our common stock up to an aggregate amount of$100.0 million through an at-the-market offering program. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. Additional capital may not be available on reasonable terms, or at all.
Our short-term investments portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.
As ofJune 30, 2022 , cash and cash equivalents held by foreign subsidiaries was$1.8 million . Our intent is to indefinitely reinvest funds held outsidethe United States and our current plans do not demonstrate a need to repatriate them to fund our domestic operations. However, if in the future, we encounter a significant need for liquidity domestically or at a particular location that we cannot fulfill through borrowings, equity offerings, or other internal or external sources, or the cost to bring back the money is not significant from a tax perspective, we may determine that cash repatriations are necessary or desirable. Repatriation could result in additional material taxes. These factors may cause us to have an overall tax rate higher than other companies or higher than our tax rates have been in the past. During the six months endedJune 30, 2022 , cash used in operating activities of$38.7 million was a result of$55.8 million of net loss, partially reduced by non-cash expenses of$15.8 million (the most significant non-cash expenses were$9.2 million of stock-based compensation and$3.6 million depreciation and amortization) and a net positive change in working capital of$1.3 million (of which$5.6 million was due to collections of accounts receivable). During the six months endedJune 30, 2022 , cash provided by investing activities was$19.9 million due to$33.3 million of net proceeds from short-term investments and$5.5 million cash receipts in connection with ourFremont facility lease incentives, partially offset by$18.9 million in property and equipment purchases. Cash provided by financing activities of$0.1 million during the same period consisted of$1.0 million proceeds from stock option exercises and$1.0 million proceeds from employee purchases under our ESPP, partially offset by$1.9 million repayments of noninterest bearing loans. During the six months endedJune 30, 2021 , cash used in operating activities of$37.7 million was a result of$27.4 million of net loss, partially reduced by non-cash expenses of$11.5 million (the most significant non-cash expenses were$6.7 million of stock-based compensation and$2.9 million depreciation and amortization) and a net negative change in working capital of$21.8 million (of which$9.6 million was related to reductions in outstanding customer prepayments as we fulfilled the related revenue contracts and$5.0 million related to reductions in prepaid expenses). During the six months endedJune 30, 2021 , cash used in investing activities was$129.6 million due to a$125.1 million net investment of cash into short-term investments and$4.5 million in property and equipment purchases. Cash provided by financing activities of$168.9 million during the same period consisted of$162.3 million net proceeds from ourJanuary 2021 follow-on equity offering,$5.1 million proceeds from noninterest bearing loans,$1.4 million proceeds from stock option exercises, and$1.2 million proceeds from employee ESPP purchases, partially offset by$0.8 million repayments of noninterest bearing loans and$0.3 million of equity offering costs.
Material Cash Requirements
Our material cash requirements in the short- and long-term consist primarily of capital expenditures, variable costs of revenue, operating expenditures, property leases, and other. We plan to fund our material cash requirements with our existing cash and cash equivalents and short-term investments, which amounted to$233.5 million as ofJune 30, 2022 , as well as anticipated cash receipts from customers. To fund our material cash requirements in the short- and long-term, we may also seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing. Capital expenditures. We expect to increase capital expenditures in future periods to support our global growth initiatives. Such expenditures are expected to consist primarily of facility renovations and improvements, laboratory equipment, and computer equipment. We currently expect capital expenditures to be between$45 and$50 million in 2022 and between$7 and$10 million in each of the next two fiscal years. In connection with our new headquarters and laboratory facility inFremont, California , we expect to spend between$30 and$35 million (net of expected landlord reimbursements) in combined leasehold improvements, renovations, administrative, and other costs through the end of 2022. This is the reason for greater expected capital expenditures in 2022 as compared to the following two years. Variable costs of revenue. From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of raw materials, laboratory supplies and consumables to be used in the sequencing of customer samples. However, we generally do not have binding and enforceable purchase orders beyond the short term, and the timing and magnitude of purchase 27 -------------------------------------------------------------------------------- orders beyond such period is difficult to accurately project. Another primary use of cash within variable costs of revenue relates to paying our workforce. We currently expect spend to decrease in 2022 due to temporarily lower revenue levels but increase in years thereafter to support revenue growth. Operating expenditures. Our primary use of cash relates to paying employees, spend on professional services, spend related to research and development projects, and other costs related to our research and development, selling, general and administrative functions. We currently expect to increase our spend in these areas to support our business growth in 2022. On a long-term basis, we manage future cash requirements relative to our long-term business plans. Property leases. Our noncancelable operating lease payments were$82.7 million as ofJune 30, 2022 . The timing of these future payments, by year, can be found in Part I, Item 1 of this Form 10-Q in the Notes to Consolidated Financial Statements in Note 7, "Leases." Other. During the second quarter of 2021, we entered into two noninterest bearing loans to finance the purchase of$5.6 million of computer hardware, internal use software licenses, and related ongoing support. In connection with these loans, we made a payment of$1.86 million in 2022 and have remaining payments of$1.86 million due in 2023, with no further payments due in 2022. Further discussion of this transaction can be found in Part I, Item 1 of this Form 10-Q in the Notes to Consolidated Financial Statements in Note 6, "Loans."
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance withU.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, and leases have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
There have been no material changes to our critical accounting policies and
estimates as compared to the critical accounting policies and estimates
described in our Annual Report on Form 10-K for the fiscal year ended
Recent Accounting Pronouncements
See the sections titled "Summary of Significant Accounting Policies-Recent Accounting Pronouncements" and "-Recent Accounting Pronouncements Not Yet Adopted" in Note 2 to our unaudited condensed consolidated financial statements for additional information.
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