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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
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 001-39482
https://cdn.kscope.io/b1229dcc6e0c5cdc1f2962995bcbdb9d-GeneDx logo.jpg
GeneDx Holdings Corp.
(Exact name of registrant as specified in its charter)
Delaware
85-1966622
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
333 Ludlow Street, North Tower;6th Floor Stamford, Connecticut
06902
(Address of Principal Executive Offices)(Zip Code)
(800) 298-6470
Registrant's telephone number, including area code

(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 Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.0001 per shareWGSThe Nasdaq Stock Market LLC
Warrants to purchase one share of Class A common stock, each at an exercise price of $379.50 per shareWGSWWThe 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 x No o
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 x No o
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 fileroAccelerated filerx
Non-accelerated fileroSmaller reporting companyx
Emerging growth companyx
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, The registrant had 25,773,328 shares of Class A common stock, par value $0.0001, outstanding as of August 1, 2023.


Table of Contents
Page
Cautionary Note Regarding Forward Looking Statements



EXPLANATORY NOTE
Unless otherwise stated in this report or the context otherwise requires, references to:

GeneDx Holdings” refer to GeneDx Holdings Corp., a Delaware corporation (f/k/a Sema4 Holdings Corp. (“Sema4 Holdings”));

“Legacy GeneDx” refer to GeneDx, LLC, a Delaware limited liability company (formerly, GeneDx, Inc., a New Jersey corporation), which we acquired on April 29, 2022 (the “Acquisition”);

“Legacy Sema4” refer to Mount Sinai Genomics, Inc. d/b/a as Sema4, a Delaware corporation, which consummated the business combination with CM Life Sciences, Inc. (“CMLS”) on July 22, 2021 (the “Business Combination”); and

“we,” “us” and “our,” the “Company” and “GeneDx” refer, as the context requires, to:

Legacy Sema4 prior to the Business Combination, and GeneDx Holdings and its consolidated subsidiaries following the consummation of the Business Combination; and

Legacy GeneDx prior to the Acquisition, and GeneDx Holdings and its consolidated subsidiaries following the consummation of the Acquisition.

In addition, unless otherwise stated in this report, all share amounts, exercise prices and other amounts set forth herein have been adjusted for the impact of a 1-for-33 reverse stock split of our Class A common stock, par value $0.0001 per share (“Class A common stock”), that became effective on May 4, 2023 (the “Reverse Stock Split”).




4


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “estimate,” “may,” “expect” and similar expressions are generally intended to identify forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as other factors which may be identified from time to time in our other filings with the Securities and Exchange Commission (the “SEC”), or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Such forward-looking statements include, but are not limited to, statements about:
our estimates of the sufficiency of our existing capital resources combined with future anticipated cash flows and future capital requirements to finance our operating requirements, and capital expenditures;
our expectations for generating revenue, incurring losses, and becoming profitable on a sustained basis;
unforeseen circumstances or other disruptions to normal business operations, including supply chain interruptions and manufacturing constraints, arising from or related to public health emergencies such as but not limited to the COVID-19 pandemic, natural disasters, acts of terrorism or other uncontrollable events;
our expectations regarding our ability to scale to profitability, our plans to pursue a new strategic direction, and the cost savings and impact on our gross margins from exiting our reproductive and women’s business and our somatic tumor testing business;
our ability to successfully implement our business strategy;
our expectations or ability to enter into service, collaboration and other partnership agreements;
our expectations or ability to build our own commercial infrastructure to scale market and sell our products;
actions or authorizations by the U.S. Food and Drug Administration (the “FDA”), or other regulatory authorities;
risks related to governmental regulation and other legal obligations, including privacy, data protection, information security, consumer protection, and anti-corruption and anti-bribery;
our ability to obtain and maintain intellectual property protection for our product candidates;
our ability to compete against existing and emerging technologies;
third-party payor reimbursement and coverage decisions, negotiations and settlements;
our reliance on third-party service providers for our data programs;
our accounting estimates and judgments, including our expectations regarding the adequacy of our reserves for third party payor claims, our estimates of the fair value of the second milestone payment related to the Acquisition and our conclusions regarding the appropriateness of the carrying value of intangible assets and goodwill;
our stock price and its volatility; and
our ability to attract and retain key personnel.
The forward-looking statements contained in this report reflect our views and assumptions only as of the date that this report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
5

Table of Contents
GeneDx Holdings Corp.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Part I - Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
6

Table of Contents
GeneDx Holdings Corp.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
June 30,
2023
(unaudited)
December 31, 2022
Assets
Current assets:
Cash and cash equivalents$156,655 $123,933 
Restricted cash 13,470 
Accounts receivable, net32,710 42,634 
Due from related parties1,196 708 
Inventory, net11,531 13,665 
Prepaid expenses and other current assets11,185 18,212 
Total current assets213,277 212,622 
Operating lease right-of-use assets33,684 32,758 
Property and equipment, net43,332 51,527 
Intangible assets, net179,638 186,650 
Long-term restricted cash900 900 
Other assets5,559 6,485 
Total assets$476,390 $490,942 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses$54,767 $84,878 
Due to related parties4,338 3,593 
Short-term lease liabilities5,346 6,121 
Other current liabilities19,917 49,705 
Total current liabilities84,368 144,297 
Long-term debt, net of current portion6,250 6,250 
Long-term lease liabilities63,748 60,013 
Other liabilities22,411 22,000 
Deferred taxes2,250 2,659 
Warrant liability220 418 
Earn-out contingent liability1,030 1,600 
Total liabilities180,277 237,237 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred Stock, $0.0001 par value: 1,000,000 and 1,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 0 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
  
Class A common stock, $0.0001 par value: 1,000,000,000 and 1,000,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 25,761,147 and 11,773,065 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
2 1 
Additional paid-in capital
1,528,240 $1,378,125 
Accumulated deficit
(1,232,129)(1,124,421)
Total stockholders’ equity
296,113 253,705 
Total liabilities and stockholders’ equity
$476,390 $490,942 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
GeneDx Holdings Corp.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)
Three months ended June 30,Six months ended June 30,
2023202220232022
Revenue:
Diagnostic test revenue (including related party revenue of $802 and $413 for the three months ended and $1,644 and $583 for the six months ended June 30, 2023 and 2022, respectively)
$46,635 $34,004 $88,485 $86,499 
Other revenue (including related party revenue of $0 and $73 for the three months ended and $0 and $147 for the six months ended June 30, 2023 and 2022, respectively)
2,071 2,165 3,360 3,611 
Total revenue
48,706 36,169 91,845 90,110 
Cost of services (including related party expenses of $1,649 and $1,348 for the three months ended and $2,464 and $2,404 for the six months ended June 30, 2023 and 2022, respectively)
29,949 65,767 57,852 114,083 
Gross profit (loss)
18,757 (29,598)33,993 (23,973)
Research and development
17,138 27,168 31,730 48,483 
Selling and marketing
15,182 32,827 28,634 58,456 
General and administrative
37,341 71,325 81,030 118,027 
Related party expenses
1,052 1,731 2,799 3,015 
Impairment loss  2,120  
Other, net(334) (334) 
Loss from operations
(51,622)(162,649)(111,986)(251,954)
Other income (expense), net:
Change in fair market value of warrant and earn-out contingent liabilities3,547 28,182 94 41,372 
Interest income
1,700 382 2,432 409 
Interest expense
(626)(790)(1,393)(1,598)
Other income, net
86 56 2,802 56 
Total other (expense) income, net
4,707 27,830 3,935 40,239 
Loss before income taxes
$(46,915)$(134,819)$(108,051)$(211,715)
Income tax benefit
196 49,077 343 49,077 
Net loss and comprehensive loss
$(46,719)$(85,742)$(107,708)$(162,638)
Weighted average shares outstanding of Class A common stock
25,418,358 10,234,910 22,754,948 8,827,829 
Basic and diluted net loss per share, Class A common stock
$(1.84)$(8.38)$(4.73)$(18.42)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
GeneDx Holdings Corp.
Condensed Consolidated Statement of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)


Three months ended June 30, 2023
Preferred StockClass A Common StockAdditional paid-in capitalAccumulated deficitTotal stockholders' equity
SharesPar valueSharesPar value
Balance at March 31, 2023 $ 24,193,436$2 $1,513,877 $(1,185,410)$328,469 
Net loss— — — — — (46,719)(46,719)
Common stock issued pursuant to stock option exercises— —  —  —  
Stock-based compensation expense — — — — 107 — 107 
Vested restricted stock units converted to common stock— — 159,780 — — — — 
Issuance of Class A common shares in registered direct offering, net of issuance costs— — 676,868 — 7,564 — 7,564 
Issuance of Class A common shares for the first Milestone Payment— — 701,460 — 6,692 — 6,692 
Fractional shares issued upon Reverse Stock Split— — 29,603 — — — — 
Balance at June 30, 2023$ 25,761,147$2 $1,528,240 $(1,232,129)$296,113 
                                  Six months ended June 30, 2023
Preferred StockClass A Common StockAdditional paid-in capitalAccumulated deficitTotal stockholders’ equity
SharesPar valueSharesPar value
Balance at December 31, 2022$ 11,773,065$1 $1,378,125 $(1,124,421)$253,705 
Net loss— — — — — (107,708)(107,708)
Common stock issued pursuant to stock option exercises— — 50,444— 266 — 266 
Stock-based compensation expense— — — — 155 — 155 
Vested restricted stock units converted to common stock— — 213,955— — — — 
Issuance of Class A common shares in registered direct offering, net of issuance costs — — 676,868 — 7,564 — 7,564 
Issuance of Class A common shares for the first Milestone Payment — — 701,460 — 6,692 — 6,692 
Fractional shares issued upon Reverse Stock Split
— — 29,603 — — — — 
Issuance of Class A common shares in underwritten public offering, net of issuance costs— — 12,315,752 1 135,438 — 135,439 
Balance at June 30, 2023
$ 25,761,147$2 $1,528,240 $(1,232,129)$296,113 

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Table of Contents
GeneDx Holdings Corp.
Condensed Consolidated Statement of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)


                                         Three months ended June 30, 2022
Preferred StockClass A Common StockAdditional paid-in capitalAccumulated deficitTotal stockholders’ equity
SharesPar valueSharesPar value
Balances at March 31, 2022$ 7,428,924$1 $981,780 $(652,337)$329,444 
Net loss— — — — — (85,742)(85,742)
Stock option exercises— — 127,778 — 1,192 — 1,192 
Stock based compensation expense— — — — 22,721 — 22,721 
Shares issued for PIPE, net of issuance costs— — 1,515,152 — 197,659 — 197,659 
Shares issued for acquisition (1)
— — 2,424,243 — 172,000 — 172,000 
Vested restricted stock units converted to common stock— — 15,929 — — — — 
Balances at June 30, 2022 $ 11,512,026$1 $1,375,352 $(738,079)$637,274 
                                         Six months ended June 30, 2022
Preferred StockClass A Common StockAdditional paid-in capitalAccumulated deficitTotal stockholders’ equity
SharesPar valueSharesPar value
Balances at December 31, 2021$ 7,352,958$1 $963,543 $(575,441)388,103 
Net loss— — — — — $(162,638)(162,638)
Stock option exercises— — 191,672 — 1,870 — 1,870 
Stock based compensation expense— — — — 40,280 — 40,280 
Shares issued for PIPE, net of issuance costs— — 1,515,152 — 197,659 — 197,659 
Shares issued for acquisition (1)
— — 2,424,243 — 172,000 — 172,000 
Vested restricted stock units converted to common stock— — 28,001 — — — — 
Balances at June 30, 2022
$ 11,512,026$1 $1,375,352 $(738,079)$637,274 
(1) Of the 2.4 million shares issued for acquisition, 251,965 shares were held by an escrow agent for a one year escrow period. During this period, the seller retained all rights with respect to the escrow shares, including voting rights and rights to receive dividends and other distributions on such escrow shares.
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Table of Contents
GeneDx Holdings Corp.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended June 30,
20232022
Operating activities
Net loss
$(107,708)$(162,638)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
18,968 14,767 
Impairment loss
2,120  
Gain on sale of assets(2,954) 
Stock-based compensation expense
156 40,280 
Gain on debt forgiveness(2,750) 
Change in fair value of warrant and earn-out contingent liabilities
(94)(41,372)
Deferred tax benefit(343)(49,077)
Provision for excess and obsolete inventory
2,620 347 
Third party payor reserve release(4,308) 
Non-cash lease expense
155 331 
Amortization of deferred debt issuance costs257 257 
Change in operating assets and liabilities:
Accounts receivable
10,174 2,357 
Inventory
(486)(2,282)
Prepaid expenses and other current assets
5,476 2,910 
Due to/from related parties
256 (1,325)
Other assets
416 (1,126)
Accounts payable and accrued expenses
(25,399)35,712 
Contract liabilities
 (473)
Other current liabilities
(5,617)(4,807)
Net cash used in operating activities
(109,061)(166,139)
Investing activities
Consideration on escrow paid for GeneDx acquisition(12,144)(127,004)
Purchases of property and equipment
(2,762)(2,748)
Proceeds from sale of assets3,634  
Development of internal-use software assets
(461)(4,458)
Net cash used in investing activities
(11,733)(134,210)
Financing activities
Proceeds from PIPE issuance, net of issuance costs 197,712 
Proceeds from offerings, net of issuance costs143,002  
Long-term debt principal payment(2,000) 
Finance lease principal payments(784)(1,634)
Finance lease payoff(438) 
Exercise of stock options266 1,819 
Net cash provided by financing activities
140,046 197,897 
Net increase (decrease) in cash, cash equivalents and restricted cash
19,252 (102,452)
Cash, cash equivalents and restricted cash, at beginning of period
138,303 401,469 
Cash, cash equivalents and restricted cash, at end of period
$157,555 $299,017 
Supplemental disclosures of cash flow information
Cash paid for interest
$946 $1,193 
Cash paid for taxes
$1,003 $365 
Stock consideration paid for purchase of business$6,692 $172,000 
Purchases of property and equipment in accounts payable and accrued expenses
$109 $3,243 
Software development costs in accounts payable and accrued expenses
$ $1,118 
Unpaid deferred transaction costs included in accounts payable and accrued expenses$ $53 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and Description of Business
GeneDx Holdings Corp. (“GeneDx Holdings”) through its subsidiaries Sema4 OpCo, Inc., formerly Mount Sinai Genomics Inc., a Delaware corporation (“Legacy Sema4”) and GeneDx, LLC, provides genomics-related diagnostic and information services and pursues genomics medical research. GeneDx utilizes an integrated portfolio of laboratory processes, software tools and informatics capabilities to process DNA-containing samples, analyze information about patient-specific genetic variation and generate test reports for clinicians and their patients. GeneDx provides a variety of genetic diagnostic tests, and screening solutions, and information with a focus on pediatrics, rare diseases for children and adults, and hereditary cancer screening. GeneDx Holdings’ operating subsidiaries primarily serve healthcare professionals who work with their patients and bills third-party payors across the United States.
On July 22, 2021 (the “Closing Date”), CM Life Sciences, Inc. (“CMLS”) completed the acquisition of Legacy Sema4, pursuant to that certain Agreement and Plan of Merger (as amended, the “Business Combination Merger Agreement”), dated February 9, 2021. On the Closing Date, S-IV Sub, Inc. merged with and into the Legacy Sema4, with Legacy Sema4 surviving the merger as a wholly-owned subsidiary of CMLS (the “Business Combination Merger” and, together with the other transactions contemplated by the Business Combination Merger Agreement, the “Business Combination”). In connection with the consummation of the Business Combination, CMLS changed its name to “Sema4 Holdings Corp.” (“Sema4 Holdings”) and Legacy Sema4 changed its name to “Sema4 OpCo, Inc.” All equity securities of Legacy Sema4 were converted into the right to receive the applicable portion of the merger consideration.
The Business Combination Merger was accounted for as a reverse recapitalization with Legacy Sema4 as the accounting acquirer and CMLS as the acquired company for accounting purposes. The shares and net loss per common share, prior to the Business Combination Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination Merger (1 share of Legacy Sema4 Class A common stock for 4.0000 shares of Sema4 Holdings Class A common stock (the “Class A common stock”).
Prior to the Business Combination Merger, shares of CMLS Class A common stock, CMLS’s public warrants, and CMLS’s public units were traded on the Nasdaq Capital Market under the ticker symbols “CMLF”, “CMFLW”, and “CMLFU” respectively. On July 23, 2021, shares of Sema4 Holdings Class A common stock and Sema4 Holdings’ public warrants began trading on the Nasdaq Global Select Market (the “Nasdaq”) under the ticker symbols “SMFR” and “SMFRW,” respectively.
In addition, on April 29, 2022, the Company consummated the transactions contemplated by that certain Agreement and Plan of Merger, dated as of January 14, 2022 (as amended, the “ Acquisition Merger Agreement”), by and among the Company and GeneDx, Inc. (“Legacy GeneDx”), a New Jersey corporation and wholly-owned subsidiary of OPKO Health, Inc. (“OPKO”), GeneDx Holding 2, Inc., which held 100% of Legacy GeneDx (“Holdco2”), at the Effective Time (as defined in the Acquisition Merger Agreement) and OPKO, which provided for, among other things, the acquisition of Legacy GeneDx from OPKO. After giving effect to the mergers and the other transactions contemplated by the Acquisition Merger Agreement (the “Acquisition”), Legacy GeneDx was converted into a Delaware limited liability company and became the Company’s wholly-owned indirect subsidiary. See Note 3, “Business Combination,” for additional details regarding the Business Combination and Acquisition.
On January 9, 2023, Sema4 Holdings Corp. changed its name to GeneDx Holdings Corp. Upon the name change, the Company’s Class A common stock and public warrants are listed on the Nasdaq under the symbols “WGS” and “WGSWW,” respectively.
Unless otherwise stated herein or unless the context otherwise requires, references in these notes to the “Company,” or “GeneDx” refer to (i) Legacy Sema4 prior to the consummation of the Business Combination; and (ii) GeneDx Holdings and its subsidiaries following the consummation of the Business Combination (including, following the consummation of the Acquisition, Legacy GeneDx).
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Table of Contents
GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Summary of Significant Accounting Policies
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”) for interim financial information and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. As such, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto as of and for the years ended December 31, 2022, 2021 and 2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed on March 16, 2023 (the “Annual Report”).
The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to state fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results of operations or cash flows for a full year or any subsequent interim period.
The Company’s historical financial information includes costs of certain services historically provided by Icahn School of Medicine at Mount Sinai (“ISMMS”) pursuant to a Transition Services Agreement (“TSA”) and service agreements. See Note 7, “Related Party Transactions”.
Although the Company has incurred recurring losses in each year since inception, the Company expects its cash and cash equivalents will be sufficient to fund operations for at least the next twelve months from the date of filing of this Quarterly Report on Form 10-Q.
Reverse Stock Split
On May 4, 2023, at the commencement of trading, the Company effected a 1-for-33 reverse stock split. Accordingly, all share and per share amounts for the periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split. No fractional shares were issued in connection with the reverse stock split.
Reclassifications
Certain reclassifications have been made to the prior year unaudited condensed consolidated financial statements in order to conform to the current year’s presentation.
Summary of Significant Accounting Policies
There have been no material changes to the Company’s critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the Company’s audited consolidated financial statements and notes thereto included within its Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. The Company bases these estimates on current facts, historical and anticipated results, trends and various other assumptions that it believes are reasonable in the circumstances, including assumptions as to future events. These estimates include, but are not limited to, the transaction price for certain contracts with customers, potential or actual claims for recoupment from third-party payors, the capitalization of software costs, the valuation of stock-based awards, inventory, earn-out contingent liabilities and earn-out Restricted Stock Units (“RSUs”). Actual results could differ materially from those estimates, judgments and assumptions.
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Table of Contents
GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The majority of the Company’s cash, cash equivalents and restricted cash are uninsured with account balances in excess of the Federal Deposit Insurance Company limits. As of June 30, 2023, 99% of the Company’s cash, cash equivalents and marketable securities was held in high-quality institutions designated as systematically important financial institutions.
Management believes these financial institutions are financially sound and, accordingly, that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents.
The Company assesses both the self-pay patient and, if applicable, the third-party payor that reimburses the Company on the patient’s behalf when evaluating the concentration of credit risk. Significant patients and payors are those that represent more than 10% of the Company’s total revenues for the period or accounts receivable balance at each respective balance sheet date. The significant concentrations of accounts receivable as of June 30, 2023 and December 31, 2022 were primarily from managed care insurance companies, institutional billed accounts, and data arrangements. There was no individual patient or client that accounted for 10% or more of the Company’s revenue or accounts receivable for any of the periods presented. The Company does not require collateral as a means to mitigate patient or payor credit risk.
For each significant payor, revenue as a percentage of total revenues and accounts receivable as a percentage of total accounts receivable are as follows:
RevenueAccounts Receivable
Three months ended June 30,Six months ended June 30,
As of
June 30,
As of
December 31,
202320222023202220232022
Payor B(1)
14%*14%**14%
Payor C*12%*10%**
Payor D
*10%*10%**
Payor E
28%19%26%*15%14%
*less than 10%
__________________
(1) This payor includes multiple individual plans and the Company calculates and presents the aggregated value from all plans, which is consistent with the Company’s portfolio approach used in accounting for diagnostic test revenue.
The Company is subject to a concentration of risk from a limited number of suppliers for certain reagents and laboratory supplies. One supplier accounted for approximately 14% and 13% of purchases for the three months ended June 30, 2023 and 2022, respectively and 14% and 13% for the six months ended June 30, 2023 and 2022. This risk is managed by maintaining a target quantity of surplus stock. Alternative suppliers are available for some or all of these reagents and supplies.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist of amounts invested primarily in money market funds, and U.S. treasury, corporate and municipal bonds. Carrying values of cash equivalents approximate fair value due to the short-term nature of these instruments.
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):
As of
June 30, 2023
As of
December 31, 2022
Cash and cash equivalents$156,655 $123,933 
Restricted cash900 14,370 
Total$157,555 $138,303 
The remaining balance of $12.1 million in restricted cash held in escrow related to the closing of the Acquisition was released upon expiration of the one year escrow period in May 2023. Therefore, restricted cash as of June 30, 2023 consists of money market deposit accounts that secure an irrevocable standby letter of credit that serves as collateral for security deposit operating leases (see Note 9, “Leases”).
Accounts Receivable
Accounts receivable consists of amounts due from customers and third-party payors for services performed and reflect the consideration to which the Company expects to be entitled in exchange for providing those services. Accounts receivable are estimated and recorded in the period the related revenue is recorded. The accounts receivable balance as of June 30, 2023 and December 31, 2022 included $2.9 million and $1.5 million, respectively, of unbilled receivables. During the quarter ended June 30, 2023, the Company did not record provisions for doubtful accounts. The Company did not write-off any accounts receivable balances during the period presented.
Inventory, net
Inventory, net, which primarily consists of finished goods such as testing supplies and reagents, is capitalized when purchased and expensed when used in performing services. Inventory is stated at the lower of cost or net realizable value. Cost is determined using actual costs on a first-in, first-out basis. The Company periodically performs obsolescence assessments and writes off any inventory that is no longer usable. Any write-down of inventory to net realizable value creates a new cost basis. During the six months ended June 30, 2023, the Company recognized an inventory write-off of $2.6 million for obsolete inventory.
Fair Value Measurements
Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. The following hierarchy lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or model-derived valuations whose significant inputs are observable.
Level 3: Unobservable inputs that are significant to the measurement of fair value but are supported by little to no market data.
The Company’s financial assets and liabilities consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, and long-term debt. The Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short-term nature of these accounts.
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company’s loan from the Connecticut Department of Economic and Community Development is classified within level 2 of the fair value hierarchy. As of June 30, 2023, this loan is recorded at its carrying value of $6.3 million in the consolidated balance sheet. The fair value of the loan is $4.7 million, which is estimated based on discounted cash flows using the yields of similar debt instruments of other companies with similar credit profiles.
Warrant Liability
As of the consummation of the Business Combination Merger in July 2021, there were 666,516 warrants to purchase shares of Class A common stock outstanding, including 447,223 public warrants and 219,293 private placement warrants. As of December 31, 2022, there were 666,515 warrants to purchase shares of Class A common stock outstanding, including 447,222 public warrants and 219,293 private placement warrants outstanding. Each warrant expires five years after the Business Combination or earlier upon redemption or liquidation, and entitles the holder to purchase one share of Class A common stock at an exercise price of $379.50 per share, subject to adjustment, at any time commencing on September 4, 2021.
The Company may redeem the outstanding public warrants if the price per share of the Class A common stock equals or exceeds $594.00 as described below:

in whole and not in part;
at a price of $0.33 per public warrant;
upon not less than 30 days’ prior written notice of redemption to each warrant holder; and
if, and only if, the closing price of the Class A common stock equals or exceeds $594.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending three trading days before sending the notice of redemption to warrant holders.
The Company may redeem the outstanding public warrants if the price per share of the Class A common stock equals or exceeds $330.00 as described below:

in whole and not in part;
at $3.30 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the common stock;
if, and only if, the closing price of the Class A common stock equals or exceeds $330.00 per share (as adjusted) for any 20 trading days within the 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and
if the closing price of the common stock for any 20 trading days within a 30-trading day period ending three trading days before the Company sends notice of redemption to the warrant holders is less than $594.00 per share (as adjusted), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above.
The private placement warrants were issued to CMLS Holdings, LLC, Mr. Munib Islam, Dr. Emily Leproust and Mr. Nat Turner, and are identical to the public warrants underlying the units sold in the initial public offering, except that (1) the private placement warrants and the common stock issuable upon the exercise of the private placement warrants would not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions, (2) the private placement warrants are exercisable on a cashless basis, (3) the private placement warrants are non-redeemable (except as described above, upon a redemption of warrants when the price per share of Class A common stock equals or exceeds $330.00) so long as they are held by the initial purchasers or their permitted transferees, and (4) the holders of the private placement warrants and the common stock issuable upon the exercise of the private placement warrants have certain registration rights. If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company accounts for warrants as liability-classified instruments based on an assessment of the warrant terms and applicable authoritative guidance in accordance with ASC 480-Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815-Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
Contingent Consideration (Legacy GeneDx)
In connection with the Acquisition, up to $150 million of contingent payments will be payable to OPKO in cash and/or shares of Company’s Class A common stock with such mix to be determined in the Company’s sole discretion, based upon achievement of 2022 and 2023 revenue milestones, pursuant to the Acquisition Merger Agreement (the “Milestone Payments”). If the Company elects to pay in shares of Class A common stock, the Acquisition Merger Agreement provides that the shares issues are to be valued at $160.38 per share for a maximum of 935,280 shares.
Subject to the terms and conditions of the Acquisition Merger Agreement, (a) the first Milestone Payment was paid out in full through the issuance of 701,460 shares valued at $112.5 million in April 2023 as the revenue of the Legacy GeneDx group for the fiscal year 2022 exceeded $163 million and (b) the second Milestone Payment of $37.5 million will become due and payable if the revenue of the Legacy GeneDx group for the fiscal year 2023 equals or exceeds $219 million (each of clauses (a) and (b), a “Milestone Event”); provided that 80% of the second Milestone Payment will become payable in respect of the second milestone period if the Legacy GeneDx group achieves 90% of the Milestone Event revenue target for such period, which amount will scale on a linear basis up to 100% of the second Milestone Payment at 100% of the revenue target. The first Milestone Payment resulted in the issuance of 701,460 shares of the Company’s Class A common stock on April 14, 2023. If the Company elects to pay in shares of Class A Common stock, the second Milestone Payment would require the issuance of up to 233,820 shares of the Company’s Class A common stock. The fair value of the second Milestone Payment was determined to be $1.0 million as of June 30, 2023 and is estimated using a Monte Carlo simulation valuation model and assuming the Company will pay the Milestone Payment in shares.
Earn-out Contingent Liability
In connection with the Business Combination Merger, all Legacy Sema4 stockholders and option holders at that time became entitled to a pro rata share of 576,412 earn-out shares and earn-out RSUs. In July 2023, the Company’s obligations to issue earn-out shares pursuant to the Business Combination Merger Agreement and shares pursuant to the earn-out RSUs expired as a result of the vesting conditions not being achieved. Based on an assessment of the earn-out shares for the Legacy Sema4 stockholders, the Company considered ASC 480 and ASC 815 and accounted for the earn-out shares as a liability. The Company subsequently measures the fair value of the liability at each reporting period and reports the changes in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.
The Company determined that the fair value of the earn-out shares issued to the Legacy Sema4 stockholders as of June 30, 2023 was zero. The estimated fair value of the earn-out is determined using a Monte Carlo simulation valuation model.
As for the earn-out RSUs for the Legacy Sema4 option holders, a total of 81,819 RSUs were granted on December 9, 2021. The vesting of such arrangement was conditioned on the satisfaction of both a service requirement and on the satisfaction of a market-based requirement. The market-based requirement would be achieved if the Company’s stock price was greater than or equal to $429 (Triggering Event I), $495 (Triggering Event II) and $594 (Triggering Event III) during the applicable performance period, based on the volume-weighted average price for a period of at least 20 days out of 30 consecutive trading days. Therefore, the Company accounts for this arrangement in accordance with ASC 718- Compensation — Stock Compensation (“ASC 718”) and stock-based compensation expense is recognized over the longer of the expected achievement period for the market-based requirement and the service requirement. The Company recorded $0.8 million reduction in stock-based compensation expense in relation to the forfeiture of the earn-out RSUs by the Legacy Sema4 option holders for the six months ended June 30, 2023. In the event that any earn-out RSUs that were forfeited as a result of a failure to achieve the service requirement, the underlying shares would be reallocated on an annual basis to the Legacy Sema4 stockholders and to the Legacy Sema4 option holders who remained employed as of the date of such reallocation. The Company accounts for the re-allocations to Legacy Sema4 option holders as new grants.
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Segment Information
Historically, the Company operated in one segment. During 2022, in connection with the Acquisition, the change in Chief Operating Decision Maker (“CODM”), and the announced exit from the majority of the Legacy Sema4 diagnostics operations, the Company’s CODM began to evaluate the Company’s business separately for GeneDx, inclusive of Legacy GeneDx and Legacy Sema4 data revenues and associated costs and corporate support costs, and the existing Legacy Sema4 diagnostics business during the fourth quarter of 2022. As a result, the Company has concluded that two reportable segments exist and have been presented as such for the first half of 2023. The majority of the Company’s operations for the first quarter of 2022 are included in the Legacy Sema4 segment, and the majority of the GeneDx segment for 2022 was resultant from the Acquisition in 2022, and thus did not exist within the Company’s condensed consolidated results for the first quarter of 2022 and through the Acquisition date. See Note 16, “Segment Reporting”, for further information.
Emerging Growth Company
The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. As such, the Company is eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including reduced reporting and extended transition periods to comply with new or revised accounting standards for public business entities. The Company has elected to avail itself of this exemption and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The new credit losses standard changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, contract assets recognized as a result of applying ASC 606, loans and certain other instruments, entities will be required to use a new forward looking “expected loss” model that generally will result in earlier recognition of credit losses than under today’s incurred loss model. The Company adopted ASU 2016-13 effective January 1, 2023 and the adoption did not have material impact in the condensed consolidated statements of operations and comprehensive loss.
Recently Issued Accounting Pronouncements Not Yet Adopted
The Company has reviewed the recently issued Accounting Standards Update accounting pronouncements and does not believe that the adoption of any such pronouncements will have a material impact on its financial statements or related disclosures.
3. Business Combinations
CMLS/Legacy Sema4 Business Combination
On July 22, 2021, the Company consummated the Business Combination (as defined in Note 1) and received net cash proceeds of $510.0 million.
Pursuant to the Business Combination, the following occurred:
Holders of 309 shares of CMLS’s Class A common stock sold in its initial public offering (the “public shares”) exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from CMLS’s initial public offering (the “IPO”), which was approximately $330.00 per share, or $101,880 in aggregate.
Each share of CMLS’s Class B common stock was automatically converted into common stock of the Company.
Each share of the Legacy Sema4 Class B common stock was converted into 1/100th of a share of Legacy Sema4 Class A common stock and each share of Legacy Sema4 common stock and preferred stock was canceled and received a portion of the merger consideration, resulting in certain Legacy Sema4 stockholders receiving $230.7 million of cash and the Legacy Sema4 stockholders receiving an aggregate of 5,404,131 shares of common stock of the Company.
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Pursuant to subscription agreements entered into on February 9, 2021, certain investors agreed to subscribe for an aggregate of 1,060,607 newly-issued shares of Class A common stock at a purchase price of $330.00 per share for an aggregate purchase price of $350,000,000 (the “Business Combination PIPE Investment”). Concurrently with the closing of the Business Combination, the Company consummated the Business Combination PIPE Investment.
After giving effect to the Business Combination Merger, the redemption of public shares and the conversion of the CMLS Class B common stock as described above, and the consummation of the Business Combination PIPE Investment, there were 7,278,498 shares of the Company’s Class A common stock issued and outstanding.
In 2021, the Company recorded $51.8 million of transaction costs which consisted of direct, incremental legal, professional, accounting, and other third-party fees that were directly related to the execution of the Business Combination Merger in additional paid-in capital. Upon consummation of the Business Combination Merger, $9.0 million of the transaction costs relates to costs incurred by Legacy Sema4 and reclassed to offset against equity from prepaid expense and other current assets.
Legacy GeneDx Acquisition
As discussed in Note 1, on April 29, 2022, the Company completed the Acquisition. At the closing of the Acquisition, the Company paid OPKO gross cash consideration of $150 million (before deduction of transaction expenses and other customary purchase price adjustments) and issued to OPKO 2.4 million shares of the Company’s Class A common stock ($172 million based on the closing date share price of $70.95 per share). A portion of this cash and stock consideration was held in escrow for a one year escrow period ending in May 2023. During the six months ended June 30, 2023, the Company completed the net working capital settlement with OPKO and released the remaining escrowed amount recorded in restricted cash. In addition, a portion of the $150 million was payable following the closing of the Acquisition due to the achievement of the first revenue-based milestone for the fiscal year ended December 31, 2022 and the remaining milestone payment up to $37.5 million will be payable if certain revenue-based milestones are achieved for the fiscal year ending December 31, 2023. During the six months ended June 30, 2023, the first Milestone Payment became due and payable in full and resulted in the issuance of 701,460 shares of the Company’s Class A common stock on April 14, 2023. The remaining milestone payment, if and to the extent earned under the terms of the Acquisition Merger Agreement, will be satisfied through the payment and/or issuance of a combination of cash and shares of the Company’s Class A common stock (valued at $160.38 per share, subject to adjustment for stock splits and similar changes), with such mix to be determined in the Company’s sole discretion. Concurrently with the closing of the Acquisition, the Company also issued and sold in a private placement 1,515,152 shares of the Company’s Class A common stock to certain institutional investors for aggregate gross proceeds of $200 million (the “Acquisition PIPE Investment”).
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents the net purchase price and the fair values of the assets and liabilities of Legacy GeneDx (in thousands):
Cash and cash equivalents$ 
Accounts receivables21,651 
Inventory6,210 
Prepaid expenses4,671 
Other current assets320 
Property and equipment29,509 
Other non-current assets6,464 
Trade names and trademarks50,000 
Developed technology48,000 
Customer relationships98,000 
Accounts payable and accrued expenses(12,862)
Other current liabilities(15,781)
Deferred tax liabilities(51,779)
Long-term lease liabilities(5,798)
Fair value of net assets acquired178,605 
Goodwill (1)185,871 
Aggregate purchase price$364,476 
(1) Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. See Note 17, “Goodwill and Intangible Assets” for more detail.
The amounts above represent the fair value estimates at the time of the Acquisition and adjustments during the measurement period which is complete.

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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
4. Revenue Recognition
Disaggregated revenue
The following table summarizes the Company’s disaggregated revenue by payor category (in thousands):
Three months ended June 30,
20232022
Diagnostic test revenue
Patients with third-party insurance
$30,573 $21,398 
Institutional customers
15,748 11,120 
Self-pay patients
314 1,486 
Total diagnostic test revenue
46,635 34,004 
Other revenue
2,071 2,165 
Total
$48,706 $36,169 
Six months ended June 30,
20232022
Diagnostic test revenue
Patients with third-party insurance
$55,902 $68,860 
Institutional customers
31,808 15,151 
Self-pay patients
775 2,488 
Total diagnostic test revenue
88,485 86,499 
Other revenue
3,360 3,611 
Total
$91,845 $90,110 
Reassessment of variable consideration
Subsequent changes to the estimate of the transaction price, determined on a portfolio basis when applicable, are generally recorded as adjustments to revenue in the period of the change. The Company updates estimated variable consideration quarterly.
For the three months ended June 30, 2023, the quarterly change in estimate resulted in a net $3.5 million increase to revenue for tests in which the performance obligation of delivering the test results was met in prior periods, which reflected the partial release of a third party payor reserve established in prior periods. For the three months ended June 30, 2022, the quarterly change in estimate resulted in a net $30.1 million decrease to revenue for tests in which the performance obligation of delivering the test results was met in prior periods. $24.2 million of this decrease was related to the years December 31, 2021 and prior. The changes in estimate are a result of changes in the estimated transaction price due to contractual adjustments, obtaining updated information from payors and patients that was unknown at the time the performance obligation was met and settlements with third party payors. The quarterly changes in estimate did not result in material adjustments to the Company’s previously reported revenue or accounts receivable amounts.

Certain payor matters
As noted above, third-party payors, including government programs, may decide to deny payment or seek to recoup payments for tests performed by the Company that they contend were improperly billed, not medically necessary or against their coverage determinations, or for which they believe they have otherwise overpaid, including as a result of their own error. As a result, the Company may be required to refund payments already received, and the Company’s revenues may be subject to retroactive adjustment as a result of these factors among others, including without limitation, differing interpretations of billing and coding guidance, and changes by government agencies and payors in interpretations, requirements, policies and/or “conditions of participation” in various programs. The Company processes requests for recoupment from third-party payors in the ordinary course of its business, and it is likely that the Company will continue to
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
do so in the future. If a third-party payor denies payment for testing or recoups money from the Company in a later period, reimbursement and the associated recognition of revenue for the Company’s testing services could decline.
As an integral part of the Company’s billing compliance program, in the third quarter of 2022, the Company instituted a third-party review of billing claims and compliance practices, and initiated improvements including implementing a package of new billing compliance policies and procedures and strengthening the Company’s billing compliance team. From time to time, the Company may have an obligation to reimburse Medicare, Medicaid, and third-party payors for overpayments regardless of fault. Settlements with third-party payors for retroactive adjustments due to audits, reviews, or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing services. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor, the Company’s historical settlement activity (if any), and the Company’s assessment of the probability a significant reversal of cumulative revenue recognized will occur when the uncertainty is subsequently resolved. Estimated settlements are adjusted in future periods as such adjustments become known (that is, if new information becomes available), or as years are settled or are no longer subject to such audits, reviews, and investigations.
Throughout 2022, the Company was engaged in discussions with one of its third-party payors (the “Payor”) regarding certain overpayments to Legacy Sema4. On December 30, 2022, the Company entered into a settlement agreement with the Payor in order to settle the claims related to coverage and billing matters allegedly resulting in the overpayments to Legacy Sema4 by the Payor to the Company (the “Disputed Claims”). Under the settlement agreement, $42.0 million is to be paid by the Company to the Payor in a series of installments over the next four years with the final installment payment scheduled to be made on or before June 30, 2026. The first installment payment of $15.0 million was made on December 31, 2022 and the next installment of $5.0 million is due in December 2023. In consideration for these payments, the Payor has agreed to provide releases of the Disputed Claims, which releases became effective on or about March 31, 2023.
As a result of this matter, and in connection with a review of certain billing policies and procedures undertaken by management, the Company considered the need to establish reserves for potential recoupments of payments previously made by third-party payors. As of June 30, 2023, the Company continued to carry liabilities that were initially established as of June 30, 2022, as a result of this matter and other potential settlements with payors, as adjusted as of June 30, 2023, based on the current facts and an evaluation of anticipated results that the Company believes reasonable for all potential recoupments for all third-party payors combined. As of June 30, 2023 and December 31, 2022, $34.7 million and $39.0 million of liabilities were recorded in accounts payable and accrued expenses and other liabilities, respectively. See Note 15, “Supplemental Financial Information”. The Company uses estimates, judgments, and assumptions to assess whether it is probable that a significant reversal in the amount of cumulative revenue may occur in future periods, based upon information presently available. These estimates are subject to change. In addition, as discussed above, the Company has made certain adjustments to its estimated variable consideration as result of this matter and other potential settlements with payors.
Remaining performance obligations
For certain long-term collaboration service agreements with original expected durations of more than one year, the Company’s obligations pursuant to such agreement represents partially unsatisfied performance obligations as of June 30, 2023. The revenues remaining under the agreements are estimated to be approximately $4.5 million. The Company expects to recognize the majority of this revenue over approximately the next 2 years.
Costs to fulfill contracts
Costs associated with fulfilling the Company’s performance obligations pursuant to its collaboration service agreements include costs for services that are subcontracted to ISMMS. Amounts prepaid are expensed in line with the pattern of revenue recognition. Prepayment of amounts prior to the costs being incurred are recognized in the condensed consolidated balance sheets as current or non-current based upon forecasted performance.
As of June 30, 2023 and December 31, 2022, the Company had outstanding deferred costs to fulfill contracts of less than $0.1 million and $0.3 million, respectively, which were recorded as other current assets in the condensed consolidated balance sheets. The Company expect to make additional payments to ISMMS under an amended subcontract agreement with ISMMS.
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Amortization of deferred costs was $0.5 million and $0.7 million for the three months ended and $1.1 million and $1.0 million for the six month ended June 30, 2023 and 2022, respectively. The amortization costs were recorded in the cost of services in the condensed consolidated statements of operations and comprehensive loss.
5. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. The following hierarchy lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or model-derived valuations whose significant inputs are observable.
Level 3: Unobservable inputs that are significant to the measurement of fair value but are supported by little to no market data.
The Company’s financial assets and liabilities consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, finance leases, warrant liability, earn-out contingent liabilities, contingent consideration based on milestone achievement, and long-term debt. The Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short-term nature of these accounts.
The Company’s finance leases are classified within Level 1 of the fair value hierarchy because such finance lease agreements bear interest at rates for instruments with similar characteristics; accordingly, the carrying value of these liabilities approximate their fair values.
The Company’s loan from the Connecticut Department of Economic and Community Development is classified within Level 2 of the fair value hierarchy. As of June 30, 2023, the loan was recorded at its carrying value of $6.3 million with no current portion recorded as there are no principal payments due until August 2024. The fair value was $4.7 million, which is estimated based on discounted cash flows using the yields of similar debt instruments of other companies with similar credit profiles.
The following tables set forth the fair value of financial instruments that were measured at fair value on a recurring basis (in thousands):
As of June 30, 2023
TotalLevel 1Level 2Level 3
Financial Liabilities:
Public warrant liability
$148 $148 $ $ 
Private warrant liability
72  72  
DECD loan4,749  4,749  
Contingent consideration based on milestone achievement1,030   1,030 
Total financial liabilities
$5,999 $148 $4,821 $1,030 
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
As of December 31, 2022
TotalLevel 1Level 2Level 3
Financial Liabilities:
Public warrant liability
$280 $280 $ $ 
Private warrant liability
138  138  
DECD loan4,904  4,904  
Contingent consideration based on milestone achievement7,619   7,619 
Total financial liabilities
$12,941 $280 $5,042 $7,619 

Of the $156.7 million cash and cash equivalents presented in the condensed consolidated balance sheets as of June 30, 2023, $121.3 million was in money market funds, $16.0 million in U.S. treasury bonds and $10.7 million in corporate and municipal bonds, all of which are classified within Level 1 of the fair value hierarchy as the fair value was based on quoted prices in active markets. Of the $123.9 million cash and cash equivalents presented on the consolidated balance sheets as of December 31, 2022, $16.9 million was in money market funds and was classified within Level 1 of the fair value hierarchy as the fair value was based on quoted prices in active markets.

The Company’s outstanding warrants include publicly traded warrants (the “Public Warrants”) which were originally issued in the IPO and warrants sold in a private placement to CMLS Holdings LLC (the “Private Warrants”). The Company evaluated its warrants under ASC 815-40-Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity. Since the Public Warrants and Private Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as non-current liabilities on the balance sheet at fair value upon the closing of the Business Combination, with subsequent changes in their respective fair values recognized in other income in the condensed consolidated statements of operations and comprehensive loss at each reporting date. As of June 30, 2023, the Public Warrants are classified within Level 1 of the fair value hierarchy as they are traded in active markets. The Private Warrants are classified within Level 2 of the fair value hierarchy as management determined the fair value of each Private Warrant is the same as that of a Public Warrant because the terms are substantially the same. For the quarter ended June 30, 2023, a gain of $0.2 million was recorded within the change in fair market value of warrant and earn-out contingent liabilities in the consolidated statements of operations and comprehensive loss based on remeasurement performed as of the period end date.

The earn-out contingent liabilities include the Company’s contingent obligation to issue earn-out shares for Legacy Sema4 stockholders (which obligation expired in July 2023) (“Earn-out Shares”) as well as the Company’s obligation to pay out the first Milestone Payment of $112.5 million to OKPO and the contingent obligation to make an additional second Milestone Payment of up to $37.5 million to OPKO if a certain revenue-based milestone is achieved for the fiscal year ended December 31, 2023.

The Earn-out Shares are accounted for as a liability and required remeasurement at each reporting date. The estimated fair value of the total Earn-out Shares as of June 30, 2023 is determined based on a Monte Carlo simulation valuation model. The fair value of the earn-out contingent liability is sensitive to the expected volatility for the Company and the Company’s Class A common stock price which is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics. The expected volatility for the Company is based on the historical volatility of selected guideline companies, the historical volatility of the Company, and the implied volatility of the Company’s call options. The key assumptions utilized in determining the Earn-out Shares valuation as of June 30, 2023 and December 31, 2022 were as follows:

June 30, 2023December 31, 2022
Stock price$5.96$8.58
Expected volatility97.5%107.5%
Expected term (in years)0.30.6
Risk-free interest rate5.40%4.76%

The fair value determined and recorded as of June 30, 2023 and December 31, 2022 was zero. During the six months ended June 30, 2023 and 2022, $0 gain or loss was recognized and $10.1 million gain was recorded, respectively, in the
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
change in fair market value of warrant and earn-out contingent liability in the condensed consolidated statements of operations and comprehensive loss based on re-measurement performed as of the period end date.
The Milestone Payment contingent liability represents additional acquisition consideration to pay up to $37.5 million based on the achievement of Legacy GeneDx revenue-based milestone in fiscal year 2023 and the obligation to payout the first milestone of $112.5 million in shares of the Company’s Class A common stock. Subject to the terms and conditions of the Acquisition Merger Agreement, (a) the first Milestone Payment of $112.5 million became due and payable in full as Legacy GeneDx revenue exceeded $163 million for the fiscal year 2022 and (b) the second Milestone Payment of $37.5 million will become due and payable if the revenue of the Legacy GeneDx group for the fiscal year 2023 equals or exceeds $219 million; provided that 80% of the second Milestone Payment will become payable in respect of the second milestone period if the Legacy GeneDx group achieves 90% of the Milestone Event revenue target for such period, which amount will scale on a linear basis up to 100% of the second Milestone Payment at 100% of the revenue target. The first Milestone Payment resulted in the issuance of 701,460 shares of the Company’s Class A common stock on April 14, 2023. The second Milestone Payment will be satisfied through the payment and/or issuance of a combination of cash and shares of the Company’s Class A common stock (valued at $160.38 per share), with such mix to be determined at the Company’s sole discretion.
The Company determined and recorded the fair value of the Milestone Payments as $1.0 million as of June 30, 2023, which is presented as current liabilities in the condensed consolidated balance sheets. For the three and six months ended June 30, 2023, a gain of $3.3 million and a loss of $0.1 million was recorded in the change in fair market value of warrant and earn-out contingent liabilities, respectively, in the condensed consolidated statements of operations and comprehensive loss based on re-measurement performed as of the period end date. The fair value of the second milestone was determined based on a Monte Carlo simulation valuation model and the key assumptions include revenue projections, revenue volatility of 18%, the Company’s expectation to settle the liability in shares and share price of $5.96 per share. The fair value of the first milestone was determined based on the Company’s expectation to settle the liability in shares and share price of $5.96 per share.
The earn-out contingent liabilities are categorized as Level 3 of the fair value hierarchy as the Company utilizes unobservable inputs in estimating the fair value. There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.
6. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
As of
June 30,
2023
As of
December 31,
2022
Laboratory equipment$35,694 $41,255 
Equipment under finance leases
15,328 21,384 
Leasehold improvements
32,352 35,561 
Capitalized software
32,171 32,171 
Building under finance lease
8,059 6,276 
Construction in-progress
7,472 3,386 
Computer equipment
9,148 9,177 
Furniture, fixtures and other equipment
3,657 3,777 
Total property and equipment
143,881 152,987 
Less: accumulated depreciation and amortization
(100,549)(101,460)
Property and equipment, net
$43,332 $51,527 
For the three months ended June 30, 2023 and 2022, depreciation and amortization expense was $6.8 million and $6.6 million, respectively. For the six months ended June 30, 2023 and 2022, depreciation and amortization expense was $12.0 million and $12.4 million, respectively. This included software amortization expense of $4.7 million and $1.7 million for
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
the three months ended and $5.7 million and $3.3 million for the six months ended June 30, 2023 and 2022, respectively. For intangible amortization, see Note 17, “Goodwill and Intangible Assets.”
For the three months ended June 30, 2023, the Company recorded a $3.4 million charge to accelerate the amortization for certain capitalized software projects associated with Legacy Sema4 that are not expected to be utilized.
For the three months ended June 30, 2023, the Company recorded a $3.0 million gain on sale of assets during the period associated with the closure of Legacy Sema4 facilities.
The Company identified indicators of impairment specifically with the modification of the sublease agreement, see Note 9, “Leases.” As a result, the Company recorded a $1.6 million impairment charge within impairment loss in the Company’s condensed consolidated statements of operations and comprehensive loss for the six months ended June 30, 2023, of which $0.8 million was allocated to the building under finance lease associated with the sublease.
Depreciation and amortization expense is included within the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
Three months ended June 30,
20232022
Cost of services$1,233 $3,316 
Research and development
4,656 1,989 
Selling and marketing
 1 
General and administrative
937 1,321 
Total depreciation and amortization expenses
$6,826 $6,627 
Six months ended June 30,
20232022
Cost of services$1,822 $6,132 
Research and development
5,508 3,838 
Selling and marketing
2 2 
General and administrative
4,624 2,458 
Total depreciation and amortization expenses
$11,956 $12,430 
7. Related Party Transactions
Related party revenues
Related party revenues primarily include diagnostic testing revenues generated by GeneDx from BioReference Laboratories, Inc. (“BRLI”), which is a subsidiary of OPKO. The prices charged represent market rates. Revenue recorded from this contract was $0.7 million and $0.3 million for the three months ended and $1.4 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively.
Related party expenses
On June 1, 2017, the Company signed a contribution and funding agreement and other agreements with ISMMS, whereby ISMMS contributed certain assets and liabilities related to the Company’s operations, provided certain services to the Company, and also committed to funding the Company up to $55.0 million in future capital contributions in exchange for equity in the Company, of which $55.0 million was drawn as of December 31, 2019. Following the transaction, the Company commenced operations and began providing the services and performing research.
Expenses recognized pursuant to service arrangements with ISMMS, including certain sub-lease arrangements the Company has through ISMMS, totaled $1.4 million and $2.3 million for the three months ended and $3.3 million and $4.2 million for the six months ended June 30, 2023 and 2022, respectively. These amounts include certain lease expenses the Company incurs and pay to ISMMS for certain sub-lease arrangements. They are included in either cost of services or related party expenses in the condensed consolidated statements of operations and comprehensive loss depending on the
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
particular activity to which the costs relate. Payables due to ISMMS for the other service arrangements were $3.3 million and $2.4 million as of June 30, 2023 and December 31, 2022, respectively, these amounts include unpaid lease payments the Company accrued for. The payments to be made to ISMMS and are included within due to related parties on the Company’s condensed consolidated balance sheets.
Additionally, the Company has purchased $1.5 million of diagnostic testing kits and materials and $0.7 and $0.8 million was recorded in cost of services for the three and six months ended June 30, 2023, respectively, from an affiliate of a member of the Board of Directors who has served in the role since July 2021. The prices paid represent market rates. Payables due were $0.1 million and $0.4 million as of June 30, 2023 and December 31, 2022, respectively.
Legacy GeneDx and OPKO entered into a Transition Services Agreement dated as of April 29, 2022 (the “OPKO TSA”) pursuant to which OPKO agreed to provide, at cost, certain services in support of the Acquisition of the Legacy GeneDx business through December 31, 2022, subject to certain limited exceptions, in order to facilitate the transactions contemplated by the Acquisition Merger Agreement, including human resources, information technology support, and finance and accounting. The Company recorded $0.4 million and $0.3 million for the three months ended and $1.2 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively, related to the agreement. As of June 30, 2023 there were $0.9 million unpaid costs and at December 31, 2022 $0.4 million was unpaid and included in due to related parties in condensed consolidated balance sheets.
During the six months ended June 30, 2023, the Company recorded a reduction of $1.3 million receivables from OPKO related to the Acquisition closing working capital adjustment that was previously recorded as of December 31, 2022. The amount was presented as other current assets in condensed consolidated balance sheets as of December 31, 2022.
Total related party costs are included within cost of services and related party expenses in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
Three months ended June 30,
20232022
Cost of services$1,649 $1,348 
Related party expenses
1,052 1,731 
Total related party costs
$2,701 $3,079 

Six months ended June 30,
20232022
Cost of services$2,464 $2,404 
Related party expenses
2,799 3,015 
Total related party costs
$5,263 $5,419 
8. Long-Term Debt
Loan and Security Agreement (the “SVB Agreement”)

On November 15, 2021, the Company and Sema4 OpCo, Inc. (together, the “Borrower”) entered into a Loan and Security Agreement (the “SVB Agreement”) with Silicon Valley Bank (“SVB”). The SVB Agreement provides for a revolving credit facility (the “Revolver”) up to an aggregate principal amount of $125.0 million, including a sublimit of $20.0 million for Letters of Credit (as such terms are defined in the SVB Agreement). The outstanding principal amount of any Advance (as such term is defined in the SVB Agreement) will bear interest at a floating rate per annum equal to the greater of (1) 4.00% and (2) the Prime Rate plus the Prime Rate Margin. The Revolver will mature on November 15, 2024. In connection with entering into the SVB agreement, the Company paid $0.5 million in debt issuance costs during 2021. The Company will pay an additional $0.5 million in fees to SVB at each anniversary of the SVB Agreement date for a total of $1.0 million and these fees are recorded in other current liabilities and other liabilities in the condensed consolidated
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
balance sheets as of June 30, 2023. These costs are capitalized and amortized on a straight-line basis over the contractual term. Any unused fees charged on the Revolver is expensed as incurred.

The obligations under the SVB Agreement are secured by a first priority perfected security interest in substantially all of the Borrower’s assets except for (i) Governmental Collection Accounts (as defined in the SVB Agreement), (ii) more than 65% of the presently existing and thereafter arising issued and outstanding shares of capital stock owned by Borrowers in a Foreign Subsidiary (as such term is defined in the SVB Agreement) and (iii) intellectual property pursuant to the terms of the SVB Agreement.

The SVB Agreement contains affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, and dividends and other distributions.
The SVB Agreement requires the Borrower to comply with certain financial covenants if Liquidity (as such term is defined in the SVB Agreement) falls below $135.0 million. These financial covenants include (i) a minimum Adjusted Quick Ratio (as such term is defined in the SVB Agreement) and (ii) the achievement of certain minimum revenue targets. On a monthly basis, the Borrowers would be required to maintain a minimum Adjusted Quick Ratio of greater than or equal to 1.25 to 1.0. The Borrower must also maintain certain trailing six-month minimum revenue targets through maturity if outstanding borrowings under the Revolver exceed $50.0 million.

The SVB Agreement also includes customary events of default, including failure to pay principal, interest or certain other amounts when due, material inaccuracy of representations and warranties, violation of covenants, certain bankruptcy and insolvency events, certain undischarged judgments, material invalidity of guarantees or grant of security interest, material adverse change, and involuntary delisting from the Nasdaq Stock Market, in certain cases subject to certain thresholds and grace periods. If one or more events of default occurs and continues beyond any applicable cure period, SVB may, without notice or demand to the Borrower, terminate its commitment to make further loans and declare all of the obligations of the Borrowers under the SVB Agreement to be immediately due and payable. The Company was in compliance with all covenants as of June 30, 2023.
On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. On March 14, 2023, Silicon Valley Bridge Bank, N.A., a new bank that is regulated by the Office of the Comptroller of the Currency, announced that it had assumed all loan positions, including as lender, issuing bank, administrative and any other function that was formerly performed by SVB, and that all commitments to advance under existing credit agreements would be honored in accordance with and pursuant to the terms thereof. On March 27, 2023, First Citizens BancShares, Inc. purchased all of the assets and liabilities of Silicon Valley Bridge Bank, N.A. from the FDIC.
No amounts had been drawn under the SVB Agreement as of June 30, 2023.
2016 Funding Commitment
In June 2017, ISMMS assigned a loan funding commitment from the Connecticut Department of Economic and Community Development (“DECD”) to the Company (as amended, the “DECD Loan Agreement”), to support the Genetic Sequencing Laboratory Project in Branford, Connecticut, with funding based on the achievement of certain project development phases. The DECD Loan Agreement, provides for a total loan commitment of $15.5 million at a fixed annual interest rate of 2.0% for a term of 10 years. The Company is required to make interest-only payments through July 2023 and principal and interest payments commencing in August 2023. The final payment of principal and interest is due in July 2028. However, under the terms of the DECD Loan Agreement, the DECD may grant partial principal loan forgiveness of up to $12.3 million in the aggregate. Such forgiveness is contingent upon the Company achieving job creation and retention milestones and $4.5 million has been forgiven as of June 30, 2023. This commitment is collateralized by providing a security interest in certain machinery and equipment the Company acquired from ISMMS, as defined in a separate security agreement.
In January 2023, the Company amended the DECD Loan Agreement, which resulted in the Company agreeing to pay $2.0 million in principal, obtaining $2.8 million in debt forgiveness for achieving its Phase 2 job milestone, and agreeing to two new forgiveness milestone targets for its Phase 3 job milestone (eligible for $2 million in forgiveness) and the final phase job milestone (eligible for $1 million in forgiveness) (the “2022 Amended DECD Loan Agreement”). Upon execution of this amendment in January 2023, the Company paid the $2.0 million in principal and received $2.75 million in
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
debt forgiveness, both of which were classified as current liabilities as of December 31, 2022 and the Company recognized the debt forgiveness as other income in the condensed consolidated statements of operations and comprehensive loss for the six months ended June 30, 2023. The terms of the 2022 Amended DECD Loan Agreement require the Company to make interest-only payments through July 2024 and principal and interest payments commencing in August 2024 through July 2029 at the same fixed annual interest rate of 2.0%.
The outstanding loan balance from the DECD Loan Agreement was $6.3 million as of June 30, 2023.
Maturities of Long-Term Debt
As of June 30, 2023, long-term debt matures as follows (in thousands):
2023 (remainder of year)
$ 
2024497 
20251,211 
20261,234 
20271,260 
Thereafter2,048 
Total maturities of long-term debt
6,250 
Less: current portion of long-term debt
 
Total long-term debt, net of current maturities
$6,250 
9. Leases
Lease Accounting

The Company enters into contracts in the normal course of business and assesses whether any such contracts contain a lease. The Company determines if an arrangement is a lease at inception if it conveys the right to control the identified asset for a period of time in exchange for consideration. The Company classifies leases as operating or financing in nature. All lease liabilities are measured at the present value of the associated payments, discounted using the Company’s incremental borrowing rate determined based on the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for similar term and in a similar economic environment on a collateralized basis, unless there is a rate implicit in the lease that is readily determinable.
Operating Leases
The Company's operating lease arrangements are principally for office space and laboratory facilities. The Company’s headquarter lease was initially entered into via sub-lease agreements with ISMMS and a third party and will expire in 2034. The Company also entered into a separate lease with a third party for space in the same building as its headquarters and that lease expires in 2029. The agreements include escalating rent and rent-free period provisions. Pursuant to the terms of the lease agreement, the Company was required to have issued an irrevocable standby letter of credit to the lessor for $0.9 million, which was included in restricted cash in the condensed consolidated balance sheets as of June 30, 2023 and consolidated balance sheets as of December 31, 2022.
In April 2019, the Company entered into a sublease agreement with ISMMS as a sublessee to the ISMMS agreement to the lessor to rent a building to be used for office and laboratory facility (the “Stamford Lease”) for a base term of 325 months, expiring in October 2046. The Company has the option to renew the lease at the end of the initial base term for either one period of 10 years, or two periods of 5 years. There is also an early termination option in which ISMMS may cancel the lease after the 196th month with cancellation fees. At inception of the Stamford Lease, the value of the land was determined to be more than 25% of the total value and therefore the building is accounted for as a finance lease and the land as an operating lease.
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GeneDx Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
In January 2020, the Company entered into a lease agreement which expanded the Company’s existing laboratory facility in Branford, Connecticut. The lease commenced in February 2020 with a 10-year term. The lease includes escalating rent fees over the lease term.
In April 2022, the Company acquired an operating lease for office space and laboratory operations in connection with the Acquisition. The lease includes a base term of 9 years remaining from the date of acquisition and an escalating rent provision.
In July 2022, the Company executed a lease agreement to extend the lease term of existing office spaces, commencing in September 2022 for a period of 13 months.
In March 2023, the Company entered into an agreement with ISMMS to use its commercially reasonable efforts to exercise the early termination option existing in the lease agreement between ISMMS and the lessor. This triggered lease modification accounting to shorten the total lease term, from a total of 23 years remaining to an estimated 13 years remaining, as the Company intends to request the exercise of this option available. The Company is required to make a payment of $8.4 million as an early termination fee if they choose to exercise this option. This modification resulted in an increase in the operating lease liability by $2.0 million and an increase in the finance lease liability by $2.6 million, respectively, due to reassessment and reapplication of the incremental borrowing rate as of the lease modification date. The Company identified indicators of impairment specifically with the modification of the sublease agreement. As a result, the Company has recorded a $1.6 million impairment charge within impairment loss in the Company’s condensed consolidated statements of operations and comprehensive loss for the six months ended June 30, 2023, of which $0.8 million was allocated to the right-of-use asset associated with the sublease.
Finance Leases
The Company enters into various finance lease agreements to obtain laboratory equipment that contain bargain purchase commitments at the end of the lease term. The leases are secured by the underlying equipment. As discussed above, the Company also leases a building used for office and laboratory space in which the building is accounted for as a finance lease and the land is as an operating lease. The interest rate initially used for the Stamford Lease was 13.1%, which was modified to 8.5% upon the lease modification explained above. The revised rate was used to measure the operating and finance lease liability.
The tables below present financial information associated with the Company’s leases (in thousands).
ClassificationJune 30, 2023December 31, 2022
Assets
Operating lease assetsOperating lease right-of-use assets$33,684 $32,758 
Finance lease assetsProperty and Equipment, net8,761 8,604 
Total lease assets$42,445 $41,362 
Liabilities
Current
OperatingShort-term lease liabilities2,645 $2,409