Genedx Holdings Corp.

02/23/2026 | Press release | Distributed by Public on 02/23/2026 07:22

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Actual results may differ materially from the results described in or implied by the forward-looking statements. You should carefully read the section entitled "Risk Factors" to gain an understanding of the important factors that could cause actual results to differ materially from these forward-looking statements.
Overview
See Note 1, "Organization and Description of Business" to our consolidated financial statements for further information.
Factors Affecting Our Operating Performance
We believe several important factors have impacted, and will continue to impact, our performance and results of operations. While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must address. See "Item 1A. Risk Factors" for more information.
Test Volume
The principal focus of our commercial operations is to offer our diagnostic tests through both our direct sales force and laboratory distribution partners. Test volume correlates with genomic database size and long-term patient relationships. Thus, test volume drives database diversity and enables potential identification of variants of unknown significance and population-specific insights. The number of exome and genome tests resulted and the mix of test results are key indicators that we use to assess the operational efficiency of our business. Once the appropriate workflow is completed, the test is resulted and details are provided to ordered patients or healthcare professionals for reviews, which corresponds to the timing of our revenue recognition.
We believe the number of resulted exome and genome tests in any period is important and useful to our investors because it directly correlates with long-term patient relationships and the size of our genomic database. During the year ended December 31, 2025, we resulted 97,271 exome and genome tests, which represented 43% of all test results, compared to the years ended December 31, 2024 and 2023, in which we resulted 74,547 and 49,439 exome and genome tests, which represented 33% and 22%, respectively, of all test results.
Success Obtaining and Maintaining Reimbursement
Our ability to increase the number of billable tests and our revenue therefrom will depend on our success in achieving reimbursement for our tests from third-party payors. Reimbursement by a payor may depend on several factors, including a payor's determination that a test is appropriate, medically necessary, cost-effective, and has received prior authorization. The commercial success of our current and future products, if approved, will depend on the extent to which our customers receive coverage and adequate reimbursement from third-party payors including commercial and Medicaid. Since each payor makes its own decision as to whether to establish a policy or enter into a contract to provide coverage for our tests, as well as the amount it will reimburse us for a test, seeking these approvals is a time-consuming and costly process.
In cases where we or our partners have established reimbursement rates with third-party payors, we face additional challenges in complying with their procedural requirements for reimbursement. These requirements often vary from payor to payor and are reassessed by third-party payors regularly. As a result, in the past we have needed additional time and resources to comply with the requirements.
Third-party payors may decide to deny payment or seek to recoup payments for tests performed by us that they contend were improperly billed, not medically necessary or against their coverage determinations, or for which they believe they have otherwise overpaid. As a result, we may be required to refund payments already received, and our revenues may be subject to retroactive adjustment as a result of these factors, among others.
We expect to continue to focus our resources on increasing the adoption of, and expanding coverage and reimbursement for, exome and genome, and any future tests we may develop or acquire. If we fail to expand and maintain broad adoption of, and coverage and reimbursement for, our tests, our ability to generate revenue and our future business prospects may be adversely affected.
Ability to Lower the Costs Associated with Performing our Tests
Reducing the costs associated with performing our diagnostic tests is both our focus and a strategic objective. We source, and will continue to source, components of our diagnostic testing workflows from third parties. We also rely upon third-party service providers for data storage and workflow management.
Increasing Adoption of our Services by Existing and New Customers
Our performance depends on our ability to retain and broaden the adoption of our services with existing customers as well as our ability to attract new customers. Our success in retaining and gaining new customers is dependent on the market's confidence in our services and the willingness of customers to continue to seek more comprehensive and integrated genomic and clinical data insights.
Investment in Platform Innovation to Support Commercial Growth
We operate in a rapidly evolving and highly competitive industry. Our business faces changing technologies, shifting provider and patient needs, and frequent introductions of rival products and services. To compete successfully, we must accurately anticipate technology developments and deliver innovative, relevant, and useful products, services, and technologies on time. As our business evolves, the competitive pressure to innovate will encompass a wider range of products and services. We must continue to invest significant resources in research and development, including investments through acquisitions and partnerships. These investments are critical to the enhancement of our current diagnostics and health information and data science technologies from which existing and new service offerings are derived.
We expect to incur significant expenses to advance these development efforts, but they may not be successful. New potential services may fail at any stage of development and, if we determine that any of our current or future services are unlikely to succeed, we may abandon them without any return on our investment. If we are unsuccessful in developing additional services, our growth potential may be impaired.
Key Components of Results of Operations
Revenue
Diagnostic Test Revenue
The majority of our revenue is derived from genetic and genomic diagnostic testing services for three groups of customers: healthcare professionals working with patients with third-party insurance coverage or without third-party insurance coverage, institutional clients such as hospitals, clinics, state governments and reference laboratories, and self-pay patients. The amount of revenue recognized for diagnostic testing services depends on a number of factors, such as resulted test volumes, contracted rates with our customers and third-party insurance providers, insurance reimbursement policies, payor mix, historical collection experience, price concessions and other business and economic conditions and trends. To date, the majority of our diagnostic test revenue has been earned from orders received for patients with third-party insurance coverage. Our ability to increase our diagnostic test revenue will depend on our ability to increase our market penetration, obtain contracted reimbursement coverage from third-party payors, enter into contracts with institutions, and increase our reimbursement rate for tests performed.
Other Revenue
We also generate revenue from collaboration service agreements with biopharma companies and other third parties, pursuant to which we provide health information and patient identification support services. Certain of these contracts provide non-refundable payments, which we record as contract liabilities, and variable payments based upon the achievement of certain milestones during the contract term.
With respect to existing collaboration and service agreements, our revenue may fluctuate period to period due to the pattern in which we may deliver our services, our ability to achieve milestones, the timing of costs incurred, changes in estimates of total anticipated costs that we expect to incur during the contract period, and other events that may not be within our control. Our ability to increase our revenue will depend on our ability to enter into contracts with third-party partners.
In addition, with the acquisition of Fabric Genomics, we generate revenues through software and interpretation services related to rare disease, hereditary risk, and cancer testing. Our customers include clinical laboratories, hospitals, and research institutions. Our ability to increase this revenue will depend on our ability to expand our customer base among hospitals and genomic centers, along with increased adoption of whole genome sequencing and AI-enabled interpretation in clinical workflows.
Cost of Services
The cost of services reflect the aggregate costs incurred in performing services, which include expenses for reagents and laboratory supplies, compensation expenses for employees directly involved in revenue generating activities, shipping and handling fees, costs of third-party reference lab testing and phlebotomy services, if any, and allocated genetic counseling, facility and information technology costs associated with delivery services. Allocated costs include depreciation of laboratory equipment, facility occupancy, and information technology costs. The cost of services are recorded as the services are performed.
We expect the cost of services to generally increase in absolute dollars with the anticipated growth in diagnostic testing volume and services we provide under our collaboration service agreements. However, we expect the cost per test to decrease over the long term due to the efficiencies we may gain from improved utilization of our laboratory capacity, automation, and other value engineering initiatives. These expected reductions may be offset by new tests which often have a higher cost per test during the introductory phases before we can gain efficiencies. The cost per test may fluctuate from period to period.
Research and Development Expenses
Research and development expenses represent costs incurred to develop our technology and future test offerings. These costs are principally associated with our efforts to develop the software we use to analyze data and process customer orders. These costs primarily consist of compensation expenses for employees performing research and development, innovation and product development activities, costs of reagents and laboratory supplies, costs of consultants and third-party services, equipment and related depreciation expenses, non-capitalizable software development costs, research funding to our research partners as part of research and development agreements and allocated facility and information technology costs associated with genomics medical research.
We generally expect our research and development expenses to continue to increase in absolute dollars as we innovate and expand the application of our platforms. However, we expect research and development expenses to decrease as a percentage of revenue in the long term, although the percentage may fluctuate from period to period due to the timing and extent of our development and commercialization efforts and fluctuations in our compensation-related charges.
Selling and Marketing Expenses
Selling and marketing expenses primarily consist of compensation expenses for employees performing commercial sales, account management, marketing, and certain genetic counseling services. Selling and marketing costs are expensed as incurred.
We generally expect our selling and marketing expenses will continue to increase in absolute dollars as we expand our commercial sales and marketing and counseling teams and increase marketing activities. However, we expect selling and marketing expenses to decrease as a percentage of revenue in the long term, subject to fluctuations from period to period due to the timing and magnitude of these expenses.
General and Administrative Expenses
General and administrative expenses primarily consist of compensation expenses for employees in executive leadership, legal, finance and accounting, human resources, information technology, and other administrative functions. In addition, these expenses include office occupancy and information technology costs. General and administrative costs are expensed as incurred.
We generally expect our general and administrative expenses to continue to increase in absolute dollars as we increase headcount and incur costs associated with operating as a public company, including expenses related to legal, accounting, and regulatory matters, and maintaining compliance with requirements of Nasdaq and of the SEC. We expect these expenses to decrease as a percentage of revenue in the long term as revenue increases, although the percentage may fluctuate from period to period due to fluctuations in our compensation-related charges.
Results of Operations
A discussion regarding our financial condition and results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024 is presented below. A discussion regarding our financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which was filed with the SEC on February 20, 2025.
Comparison of the Years Ended December 31, 2025 and 2024
The following table sets forth our results of operations for the periods presented (in thousands):
Year Ended December 31,
2025 2024 $ Change % Change
Revenue
Diagnostic test revenue $ 416,668 $ 302,157 $ 114,511 38 %
Other revenue 10,871 3,293 7,578 NM
Total revenue 427,539 305,450 122,089 40 %
Cost of services 129,366 111,053 18,313 16 %
Gross profit 298,173 194,397 103,776 53 %
Research and development 72,026 45,722 26,304 58 %
Selling and marketing 88,405 67,371 21,034 31 %
General and administrative 150,819 104,517 46,302 44 %
Loss from operations
(13,077) (23,213) 10,136 (44) %
Non-operating expenses, net
Change in fair value of financial liabilities (1,204) (13,370) 12,166 (91) %
Interest expense, net (2,539) (3,032) 493 (16) %
Other expense, net
(4,317) (13,014) 8,697 (67) %
Total non-operating expense, net (8,060) (29,416) 21,356 (73) %
Loss before income taxes (21,137) (52,629) 31,492 (60) %
Income tax benefit 116 343 (227) (66) %
Net loss $ (21,021) $ (52,286) $ 31,265 (60) %
NM - Not Meaningful
Revenue
Total revenue increased by $122.1 million, or 40%, to $427.5 million for the year ended December 31, 2025, from $305.5 million for the year ended December 31, 2024.
Diagnostic test revenue increased by $114.5 million, or 38%, to $416.7 million for the year ended December 31, 2025, from $302.2 million for the year ended December 31, 2024. The increase was attributable to a $126.8 million increase in exome and genome sequencing revenues driven by a 30% increase in test volumes and an 18% increase in average reimbursement rates. This increase was partially offset by lower revenue from non-core hereditary cancer tests, which were phased out by the end of 2025.
Other revenue increased by $7.6 million, to $10.9 million for the year ended December 31, 2025, from $3.3 million for the year ended December 31, 2024. The increase reflects $3.4 million of non-testing revenue from the recently acquired Fabric Genomics operating segment and the continued expansion of data and bio pharma programs.
Gross Profit
Gross profit increased by $103.8 million for the year ended December 31, 2025, driven by a combination of a shift in test mix to more profitable whole exome and genome tests, improvement in exome average reimbursement rates, and continued cost per test leverage.
Research and Development
Research and development expenses increased by $26.3 million, or 58%, to $72.0 million for the year ended December 31, 2025, from $45.7 million for the year ended December 31, 2024. The increase was primarily attributable to compensation related costs of $24.3 million, which reflects an investment to expand our product development team and the inclusion of research and development costs of Fabric Genomics.
Selling and Marketing
Selling and marketing expenses increased by $21.0 million, or 31%, to $88.4 million for the year ended December 31, 2025, from $67.4 million for the year ended December 31, 2024. The increase was primarily attributable to higher compensation related costs of $16.5 million, which reflects our investment to support growth in our commercial team, as well as the inclusion of selling and marketing costs of Fabric Genomics.
General and Administrative
General and administrative expenses increased by $46.3 million, or 44%, to $150.8 million for the year ended December 31, 2025, from $104.5 million for the year ended December 31, 2024. The increasewas primarily attributable to increased compensation related costs of $33.0 million, higher legal, compliance and consultant related costs of $9.5 million, higher IT software and infrastructure costs of $6.1 million and increased amortization expense for acquired intangible assets established in connection with purchase accounting. These increases were partially offset by a one-time sales-and-use tax refund of $8.4 million.
Non-Operating Expense, Net
Non-operating expense, net of $8.1 million for the year ended December 31, 2025 primarily reflected a legal settlement of $4.8 million and a non-cash charge of $1.2 million to account for the increase in fair value of our financial liabilities. Net interest expense for the year ended December 31, 2025 was $2.5 million.
Non-operating expense, net of $29.4 million for the year ended December 31, 2024 primarily reflected a legal settlement, net of insurance, of $12.8 million, a non-cash charge of $10.1 million associated with the exercise of the Perceptive warrant and a non-cash charge of $3.3 million to account for the increase in fair value of our financial liabilities. Net interest expense for the year ended December 31, 2024 was $3.0 million.
See Note 5, "Fair Value Measurement", Note 9, "Long-Term Debt" and Note 11, "Purchase Commitments and Contingencies" to our consolidated financial statements for further information.
Reconciliation of Non-GAAP Financial Measures
In addition to our results determined in accordance with accounting principles generally accepted in the United States ("U.S. GAAP" or "GAAP"), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Non-GAAP financial measures have limitations as analytical tools and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of non-GAAP financial measures. Other limitations include that non-GAAP financial measures do not reflect:
•all expenditures or future requirements for capital expenditures or contractual commitments;
•changes in our working capital needs;
•the costs of replacing the assets being depreciated, which will often have to be replaced in the future;
•the non-cash component of employee compensation expense; and
•the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations.
Adjusted Gross Profit and Adjusted Gross Margin
Adjusted gross profit is a non-GAAP financial measure that we define as revenue less cost of services, excluding depreciation and amortization expense, stock-based compensation expense and restructuring costs. We define adjusted gross margin as our adjusted gross profit divided by our revenue. We believe these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.
The following is a reconciliation of revenue to our adjusted gross profit and adjusted gross margin for the years ended December 31, 2025, 2024, and 2023:
Year Ended December 31,
2025 2024 2023
Revenue $ 427,539 $ 305,450 $ 202,566
Cost of services 129,366 111,053 112,560
Gross profit 298,173 194,397 90,006
Gross margin 69.7 % 63.6 % 44.4 %
Add:
Depreciation and amortization expense $ 5,369 $ 4,047 $ 4,350
Stock-based compensation expense 791 431 (1,217)
Restructuring costs 5 54 139
Adjusted gross profit $ 304,338 $ 198,929 $ 93,278
Adjusted gross margin 71.2 % 65.1 % 46.0 %
Adjusted Net Income (Loss)
Adjusted net income (loss) is a non-GAAP financial measure that we define as net income adjusted for depreciation and amortization, stock-based compensation expenses, restructuring costs, impairment loss, change in fair value of financial liabilities, interest expense (income), net, income tax expense (benefit), net, and other (income) expense, net. We believe adjusted net income (loss) is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain factors that may vary from company to company for reasons unrelated to overall operating performance.
The following is a reconciliation of our net loss to adjusted net income (loss) for the years ended December 31, 2025, 2024, and 2023:
Year Ended December 31,
2025 2024 2023
Net loss $ (21,021) $ (52,286) $ (175,767)
Depreciation and amortization 25,224 21,953 - 33,734
Stock-based compensation expense 32,162 9,138 - (326)
Restructuring costs 1,275 1,752 - 6,532
Impairment loss (1)
- - 10,402
Change in fair value of financial liabilities 1,204 13,370 (1,170)
Interest expense (income), net 2,539 3,032 (1,114)
Income tax benefit
(116) (343) (926)
Other (2)
542 12,789 338
Adjusted net income (loss) $ 41,809 $ 9,405 $ (128,297)
(1)Represents the impairment of certain capital and right-of-use asset leases.
(2)For the year ended December 31, 2025, represents transaction costs associated with the Merger Agreement, a reserve for a certain litigation matter and a sales-and-use tax refund. For the year ended December 31, 2024, represents reserves net of insurance for a certain litigation matter. For the year ended December 31, 2023, represents a gain recognized on the sale of certain assets sold as a result of an auction, principal loan forgiveness under the amendment to the DECD loan, and contract termination costs associated with the now discontinued Legacy Sema4 business.
Liquidity and Capital Resources
As of December 31, 2025, our existing cash and cash equivalents and available-for-sale marketable securities were $171.3 million.
We believe that our cash and cash equivalents and available-for-sale marketable securities provide us with sufficient liquidity for at least twelve months from the filing date of this Annual Report. Accordingly, our consolidated financial statements included in this Annual Report have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Nevertheless, we may also seek additional funding in the future through the sale of common or preferred equity or convertible debt securities, by entering into other credit facilities or other forms of third-party funding, or other debt financing or by disposing of assets or businesses.
In October 2025, we filed an automatic universal shelf registration statement that provides for the sale of our Class A common stock and other securities, and up to an aggregate of $100.0 million of our Class A common stock that may be issued from time to time under a Sales Agreement (the "Sales Agreement") with TD Securities (USA) LLC ("TD Cowen"). The Sales Agreement was implemented following the use in full of a prior sales agreement for up to $75.0 million of Class A common stock with TD Cowen. As of December 31, 2025, approximately $78.2 million of capacity remained available under this Sales Agreement.
Material Cash Requirements for Known Contractual Obligations and Commitments
The following is a description of commitments for known and reasonably likely cash requirements as of December 31, 2025. We anticipate fulfilling such commitments with our existing cash and cash equivalents and available-for-sale marketable securities or through additional capital raised to finance our operations.
Our future minimum payments under non-cancellable operating lease and finance lease agreements were $57.2 million and $29.2 million, respectively as of December 31, 2025. The timing of these future payments, by year, can be found in Note 10, "Leases" to our consolidated financial statements.
As discussed in the notes to our consolidated financial statements, in 2022, we entered into an agreement with one of our third-party payors to settle for $42.0 million claims related to coverage and billing matters allegedly resulting in overpayments by the payor to Legacy Sema4. As of December 31, 2025, remaining payments due to the payor were $2.0 million. For more information regarding this matter, see Note 4, "Revenue Recognition" to our consolidated financial statements.
Our future contractual purchase commitments were $35.7 million as of December 31, 2025. The timing of these future payments, by year, can be found in Note 11, "Purchase Commitments and Contingencies" to our consolidated financial statements.
Cash Flows
Year Ended December 31,
2025 2024 2023
Net cash provided by (used in) operating activities $ 33,279 $ (28,496) $ (180,147)
Net cash used in investing activities (61,517) (30,132) (43,726)
Net cash provided by financing activities 48,025 44,162 186,238
Operating Activities
Net cash provided by operating activities during the year ended December 31, 2025 was $33.3 million, driven by improved gross margin profitability in the current year and favorable net working capital attributable to the timing of collections and payments associated with operating assets and liabilities.
Net cash used in operating activities during the year ended December 31, 2024 was $28.5 million, driven by lower cash expenditures in the current year period net loss as compared with the prior year period, which reflected improved gross margin profitability, as well as the realization of cost savings from the exited Legacy Sema4 business and other cost reduction initiatives.
Net cash used in operating activities during the year ended December 31, 2023 was $180.1 million, which was primarily attributable to a net loss of $175.8 million and unfavorable working capital associated with the wind down of the Legacy Sema4 accounts payable, primarily during the second half of 2023, which was partially offset by the release of a third-party payor reserve.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2025 was $61.5 million, which included $32.9 million for the acquisition of Fabric Genomics, purchases of property and equipment of $19.0 million, and net marketable securities activity of $9.6 million.
Net cash used in investing activities during the year ended December 31, 2024 was $30.1 million which included net marketable securities activity of $24.6 million and purchases of property and equipment of $5.5 million.
Net cash used in investing activities during the year ended December 31, 2023 was $43.7 million, which included net marketable securities activity of $29.9 million, purchases of property and equipment of $5.3 million, and $12.1 million in consideration held in escrow paid for the Acquisition, which was partially offset by $4.0 million of proceeds from the sale of assets.
Financing Activities
Net cash provided by financing activities during the year ended December 31, 2025 was $48.0 million, which primarily reflected proceeds from our prior at-the-market offering ("prior ATM offering") of $46.7 million, net of issuance costs.
Net cash provided by financing activities during the year ended December 31, 2024 was $44.2 million, which included $46.5 million in proceeds from our prior ATM offering, net of issuance costs, which was partially offset by $2.7 million of finance lease payments and $0.5 million of principal payments on the DECD loan.
Net cash provided by financing activities during the year ended December 31, 2023 was $186.2 million, which was primarily driven by the $143.0 million net proceeds from the underwritten public offering and concurrent registered direct offering, net of issuance costs, and $48.5 million from the term loan facility with Perceptive (the "Perceptive Term Loan Facility"), which was partially offset by $3.6 million of finance lease payments and $2.0 million of payments on the DECD loan.
Recent Accounting Pronouncements
Information on recent accounting pronouncements can be found in Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
See Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements for a complete description of each of these critical accounting policies and estimates. Each of these critical accounting policies could potentially generate materially different results if we were to change underlying assumptions, estimates and/or judgments. Although actual results may differ from those estimates, we believe the estimates are reasonable and appropriate.
Revenue Recognition
We recognize revenue when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services are transferred to a customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer. Our contracts require significant judgments in determining the transaction price and satisfying performance obligations.
Diagnostic Test Revenue
We estimate a transaction price in arrangements with third-party insurance payors based on historical collection experience, contractual provisions and insurance reimbursement policies, payor mix, and other relevant information for applicable payor portfolios. The portfolio approach is used as a practical expedient to account for categories of diagnostic test contracts as collective groups rather than on an individual contract basis. Management believes that revenue recognized by utilizing the portfolio approach approximates the revenue that would have been recognized if an individual contract approach was used. For
orders received for self-pay patients, we determine a transaction price associated with services rendered in consideration of implicit price concessions that are granted to such orders. The estimates for implicit price concessions require significant judgment and are based upon management's assessment of expected net collections, business and economic conditions, historical trends, trends in federal, state and private employer health care coverage and other collection indicators. For institutional clients, the customer is the institution. We determine a transaction price associated with services rendered in accordance with the contractual rates established with each customer.
We monitor these estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Both the initial estimate and any subsequent revision to the estimate contain uncertainty and require the use of judgment in the estimation of the transaction price and application of the constraint for variable consideration. If actual results in the future vary from our estimates, we will adjust these estimates, which could affect revenue and earnings in the period such variances become known.
Other Revenue
We also recognize revenue from collaboration service agreements with biopharma companies and other third parties pursuant to which we provide health information and patient identification support services. For Fabric Genomics, Other Revenue consists of clinical services billed directly to institutions, including virtual care, AI-enabled patient engagement, and genomic analysis services. Revenue is recognized when performance obligations are satisfied and collection is reasonably assured.
Business Combinations
We account for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. The estimated fair value of identifiable intangible assets acquired in a business combination is based on third-party valuations that use information and assumptions provided by the Company's management, which consider estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, royalty rate, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods.
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