UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 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: 001-38683

_____________________

GUARDANT HEALTH, INC.

(Exact Name of Registrant as Specified in its Charter)

_____________________

Delaware	45-4139254
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

505 Penobscot Dr.

Redwood City, California, 94063

Registrant’s telephone number, including area code: (855) 698-8887

_______________

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, a 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 Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller 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  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.00001	GH	The Nasdaq Global Select Market

As of July 31, 2020, the registrant had 99,424,269 shares of common stock, $0.00001 par value per share, outstanding.

GUARDANT HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION
		Page
Item 1.	Unaudited Condensed Consolidated Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to the Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	62
	Signatures	63

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are based on our current expectations, estimates, forecasts and projections as well as the current beliefs and assumptions of our management, including about our business, our financial condition, our results of operations, our cash flows, and the industry and environment in which we operate. Statements that include words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “would,” “could,” “should,” “intend” and “expect,” variations of these words, and similar expressions, are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A,“Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019, in Part II, Item 1A, “Risk Factors” and elsewhere in our Quarterly Report on Form 10-Q for the period ended March 31, 2020, and in other reports we file with the U.S. Securities and Exchange Commission, or the SEC. While forward-looking statements are based on the reasonable expectations of our management at the time that they are made, you should not rely on them. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as may be required by law.

Each of the terms the “Company,” “we,” “our,” “us” and similar terms used herein refer collectively to Guardant Health, Inc., a Delaware corporation, and its consolidated subsidiaries, unless otherwise stated. 

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Guardant Health, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)

	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	164,671	$	143,228
Short-term marketable securities	773,160		379,574
Accounts receivable, net	41,017		47,986
Inventory	20,354		15,181
Prepaid expenses and other current assets	11,101		11,389
Total current assets	1,010,303		597,358
Long-term marketable securities	146,118		268,783
Property and equipment, net	56,995		43,668
Right-of-use assets	38,503		29,140
Intangible assets, net	17,148		8,524
Goodwill	3,290		3,290
Capitalized license fees	55		6,890
Other assets	5,124		4,882
Total Assets(1)	$	1,277,536	$	962,535
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,982	$	16,197
Accrued compensation	18,526		18,557
Accrued expenses	24,055		25,703
Deferred revenue	11,485		12,277
Total current liabilities	70,048		72,734
Long-term operating lease liabilities	41,117		33,256
Obligation related to royalty	—		6,880
Other long-term liabilities	1,382		1,672
Total Liabilities(1)	112,547		114,542
Redeemable noncontrolling interest	50,400		49,600
Stockholders’ equity:
Common stock, par value of $0.00001 per share; 350,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 99,312,237 and 94,261,414 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively	1		1
Additional paid-in capital	1,544,373		1,150,090
Accumulated other comprehensive income	5,392		1,111
Accumulated deficit	(435,177)		(352,809)
Total Stockholders’ Equity	1,114,589		798,393
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity	$	1,277,536	$	962,535

(1) As of June 30, 2020 and December 31, 2019, includes $38.4 million and $45.1 million of assets, respectively, that can be used only to settle obligations of the consolidated variable interest entity (“VIE”) and VIE’s subsidiaries, and $4.0 million and $5.7 million of liabilities of the consolidated VIE and VIE’s subsidiaries, respectively, for which their creditors do not have recourse to the general credit of the Company. See Note 3, Investment in Joint Venture.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Guardant Health, Inc.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue:
Precision oncology testing	$	50,991	$	42,064	$	111,237	$	70,901
Development services	15,344		11,911		22,608		19,729
Total revenue	66,335		53,975		133,845		90,630
Costs and operating expenses:
Cost of precision oncology testing	17,809		14,650		36,000		25,673
Cost of development services	4,626		2,183		6,941		4,695
Research and development expense	36,319		19,532		73,335		35,848
Sales and marketing expense	25,015		19,439		50,130		37,246
General and administrative expense	37,186		13,439		56,971		26,100
Total costs and operating expenses	120,955		69,243		223,377		129,562
Loss from operations	(54,620)		(15,268)		(89,532)		(38,932)
Interest income	2,640		3,099		5,958		5,584
Interest expense	(10)		(287)		(22)		(580)
Other income (expense), net	2,285		(51)		2,076		96
Loss before provision for income taxes	(49,705)		(12,507)		(81,520)		(33,832)
Provision for (benefit from) income taxes	34		(1,207)		48		(1,181)
Net loss	(49,739)		(11,300)		(81,568)		(32,651)
Adjustment of redeemable noncontrolling interest	(4,900)		(300)		(800)		(5,000)
Net loss attributable to Guardant Health, Inc. common stockholders	$	(54,639)	$	(11,600)	$	(82,368)	$	(37,651)
Net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted	$	(0.57)	$	(0.13)	$	(0.87)	$	(0.43)
Weighted-average shares used in computing net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted	96,011		89,036		95,196		87,494

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Guardant Health, Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net loss	$	(49,739)	$	(11,300)	$	(81,568)	$	(32,651)
Other comprehensive income (loss), net of tax impact:
Unrealized gain (loss) on available-for-sale securities	(2,338)		852		4,233		1,337
Foreign currency translation adjustments	25		159		48		90
Other comprehensive income (loss)	(2,313)		1,011		4,281		1,427
Comprehensive loss	$	(52,052)	$	(10,289)	$	(77,287)	$	(31,224)
Comprehensive loss attributable to redeemable noncontrolling interest	(4,900)		(300)		(800)		(5,000)
Comprehensive loss attributable to Guardant Health, Inc.	$	(56,952)	$	(10,589)	$	(78,087)	$	(36,224)

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Guardant Health, Inc.

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity (unaudited)

(in thousands, except share data)

	Three Months Ended June 30, 2020
	Redeemable Noncontrolling Interest		Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
			Shares	Amount
Balance as of March 31, 2020	$	45,500	94,509,011	$	1	$	1,157,945	$	7,705	$	(380,538)	$	785,113
Issuance of common stock in public offering, net of offering costs of $1,130	—		4,312,500	—		354,600		—		—		354,600
Issuance of common stock upon exercise of stock options	—		412,554	—		2,044		—		—		2,044
Vesting of restricted stock units	—		20,008	—		—		—		—		—
Vesting of common stock exercised early	—		—	—		13		—		—		13
Common stock issued under employee stock purchase plan	—		58,164	—		3,956		—		—		3,956
Stock-based compensation	—		—	—		25,815		—		—		25,815
Adjustment of redeemable noncontrolling interest	4,900		—	—		—		—		(4,900)		(4,900)
Other comprehensive loss	—		—	—		—		(2,313)		—		(2,313)
Net loss	—		—	—		—		—		(49,739)		(49,739)
Balance as of June 30, 2020	$	50,400	99,312,237	$	1	$	1,544,373	$	5,392	$	(435,177)	$	1,114,589

	Three Months Ended June 30, 2019
	Redeemable Noncontrolling Interest		Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
			Shares	Amount
Balance as of March 31, 2019	$	46,500	86,098,474	$	1	$	771,009	$	333	$	(303,209)	$	468,134
Issuance of common stock in public offering, net of offering costs of $723	—		5,175,000	—		349,709		—		—		349,709
Issuance of common stock upon exercise of stock options	—		1,531,672	—		4,992		—		—		4,992
Vesting of restricted stock units	—		1,106	—		—		—		—		—
Vesting of common stock exercised early	—		—	—		13		—		—		13
Stock-based compensation	—		—	—		3,215		—		—		3,215
Adjustment of redeemable noncontrolling interest	300		—	—		—		—		(300)		(300)
Other comprehensive loss	—		—	—		—		1,011		—		1,011
Net loss	—		—	—		—		—		(11,300)		(11,300)
Balance as of June 30, 2019	$	46,800	92,806,252	$	1	$	1,128,938	$	1,344	$	(314,809)	$	815,474

7

	Six Months Ended June 30, 2020
	Redeemable Noncontrolling Interest		Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
			Shares	Amount
Balance as of December 31, 2019	$	49,600	94,261,414	$	1	$	1,150,090	$	1,111	$	(352,809)	$	798,393
Issuance of common stock in public offering, net of offering costs of $1,130	—		4,312,500	—		354,600		—		—		354,600
Issuance of common stock upon exercise of stock options	—		654,557	—		3,548		—		—		3,548
Vesting of restricted stock units	—		25,602	—		—		—		—		—
Vesting of common stock exercised early	—		—	—		26		—		—		26
Common stock issued under employee stock purchase plan	—		58,164	—		3,956		—		—		3,956
Stock-based compensation	—		—	—		32,153		—		—		32,153
Adjustment of redeemable noncontrolling interest	800		—	—		—		—		(800)		(800)
Other comprehensive loss	—		—	—		—		4,281		—		4,281
Net loss	—		—	—		—		—		(81,568)		(81,568)
Balance as of June 30, 2020	$	50,400	99,312,237	$	1	$	1,544,373	$	5,392	$	(435,177)	$	1,114,589

	Six Months Ended June 30, 2019
	Redeemable Noncontrolling Interest		Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
			Shares	Amount
Balance as of December 31, 2018	$	41,800	85,832,454	$	1	$	764,033	$	(83)	$	(280,799)	$	483,152
Cumulative effect adjustment for Topic 606 adoption	—		—	—		—		—		4,907		4,907
Cumulative effect adjustment for ASU 2018-07 adoption	—		—	—		1,266		—		(1,266)		—
Issuance of common stock in public offering, net of offering costs of $723	—		5,175,000	—		349,709		—		—		349,709
Issuance of common stock upon exercise of stock options	—		1,677,990	—		5,530		—		—		5,530
Vesting of restricted stock units	—		1,106	—		—		—		—		—
Vesting of common stock exercised early	—		—	—		69		—		—		69
Common stock issued under employee stock purchase plan	—		119,702	—		1,933		—		—		1,933
Stock-based compensation	—		—	—		6,398		—		—		6,398
Adjustment of redeemable noncontrolling interest	5,000		—	—		—		—		(5,000)		(5,000)
Other comprehensive gain, net of tax impact	—		—	—		—		1,427		—		1,427
Net loss	—		—	—		—		—		(32,651)		(32,651)
Balance as of June 30, 2019	$	46,800	92,806,252	$	1	$	1,128,938	$	1,344	$	(314,809)	$	815,474

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Guardant Health, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Six Months Ended June 30,
	2020		2019
OPERATING ACTIVITIES:
Net loss	$	(81,568)	$	(32,651)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	7,109		5,011
Amortization of right-of-use assets	3,386		1,633
Charge of in-process research and development costs with no alternative future use	8,500		—
Unrealized translation gains (loss) on obligation related to royalty	—		(51)
Re-valuation of contingent consideration	(190)		—
Non-cash stock-based compensation	32,153		6,398
Amortization of premium (discount) on marketable securities	1,065		(1,276)
Benefit from income tax differences	—		(1,235)
Others	(19)		—
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable, net	6,894		234
Inventory	(5,173)		(5,040)
Prepaid expenses and other current assets	438		1,122
Other assets	(242)		(1,129)
Accounts payable	(2,476)		3,412
Accrued compensation	(31)		701
Accrued expenses and other liabilities	(1,820)		2,939
Operating lease liabilities	(3,881)		1,435
Deferred revenue	(792)		358
Net cash used in operating activities	(36,647)		(18,139)
INVESTING ACTIVITIES:
Purchases of marketable securities	(465,302)		(418,841)
Maturity of marketable securities	197,548		129,160
Business acquisition, net of cash acquired	—		(9,765)
Purchases of property and equipment	(19,105)		(5,752)
Purchase of intangible assets	(17,886)		—
Net cash used in investing activities	(304,745)		(305,198)
FINANCING ACTIVITIES:
Payments made on royalty obligations	—		(151)
Payments made on capital lease obligations	(79)		(62)
Proceeds from issuance of common stock upon exercise of stock options	3,548		5,530
Proceeds from issuances of common stock under employee stock purchase plan	3,956		1,933
Proceeds from public offering, net of underwriting discounts and commissions	355,730		350,432
Payment of offering costs related to public offering	(369)		(326)

9

Net cash provided by financing activities	362,786		357,356
Net effect of foreign exchange rate changes on cash and cash equivalents	49		90
Net increase in cash and cash equivalents	21,443		34,109
Cash and cash equivalents—Beginning of period	143,228		140,544
Cash and cash equivalents—End of period	$	164,671	$	174,653
Supplemental Disclosures of Cash Flow Information:
Operating lease liabilities arising from obtaining right-of-use assets	$	11,373	$	1,565
Supplemental Disclosures of Noncash Investing and Financing Activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	5,396	$	3,874
Follow-on public offering issuance costs included in accounts payable and accrued expenses	$	761	$	486
Initial fair value of contingent consideration at acquisition date	$	—	$	1,135

The accompanying notes are an integral part of these condensed consolidated financial statements.

10

 Guardant Health, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business

Guardant Health, Inc. (the “Company”) is a leading precision oncology company focused on helping conquer cancer globally through use of its proprietary blood tests, vast data sets and advanced analytics. The key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease, which the Company enables by a routine blood draw, or liquid biopsy. The Guardant Health Oncology Platform is designed to leverage the Company’s capabilities in technology, clinical development, regulatory and reimbursement to drive commercial adoption, accelerate drug development, improve patient clinical outcomes and lower healthcare costs. In pursuit of its goal to manage cancer across all stages of the disease, the Company has launched its Guardant360 and GuardantOMNI liquid biopsy-based tests for advanced stage cancer and is developing tests from its LUNAR program which aims to address the needs of early stage cancer patients with neoadjuvant and adjuvant treatment selection, cancer survivors with surveillance, and asymptomatic individuals eligible for cancer screening and individuals at a higher risk for developing cancer with early detection and is developing tests from its LUNAR program which aims to address the needs of early stage cancer patients with neoadjuvant and adjuvant treatment selection, cancer survivors with surveillance, and asymptomatic individuals eligible for cancer screening and individuals at a higher risk for developing cancer with early detection. Using data collected from the Company's Guardant360 tests, the Company has also developed GuardantINFORM platform to further accelerate precision oncology drug development by biopharmaceutical companies by offering them an in-silico research platform to further unlock insights into tumor evolution and treatment resistance across various biomarker-driven cancers.

The Company was incorporated in Delaware in December 2011 and is headquartered in Redwood City, California. In May 2018, the Company formed and capitalized Guardant Health AMEA, Inc. (the “Joint Venture”) in the United States with an affiliate of SoftBank Vision Fund (AIV M1) L.P. (“SoftBank”). Under the terms of the joint venture agreement, the Company held a 50% ownership interest in the Joint Venture. As of June 30, 2020, the Joint Venture has subsidiaries in Singapore and Japan (see Note 3, Investment in Joint Venture) and the Company has a subsidiary in Switzerland, which was incorporated in 2019.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements include the accounts of Guardant Health, Inc. and its consolidated Joint Venture. Other stockholders’ interests in the Joint Venture are shown in the condensed consolidated financial statements as redeemable noncontrolling interest. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company believes that its existing cash and cash equivalents and marketable securities as of June 30, 2020 will be sufficient to allow the Company to fund its current operating plan through at least a period of one year after the date the accompanying condensed consolidated financial statements are issued. As the Company continues to incur losses, its transition to profitability is dependent upon a level of revenues adequate to support the Company’s cost structure. If the Company’s transition to profitability is not consistent with its current operating plan, the Company may have to seek additional capital.