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UNITED STATES

FORM 10-Q

x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

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

Delaware			85-1966622
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
333 Ludlow Street, North Tower, 8th Floor Stamford, Connecticut			06902
(Address of Principal Executive Offices)			(Zip Code)

(800) 298-6470

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Class A common stock, par value $0.0001 per share			SMFR			The Nasdaq Global Select Market
Warrants to purchase one share of Class A common stock, each at an exercise price of $11.50 per share			SMFRW			The Nasdaq Global Select Market

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

Large accelerated filer			o			Accelerated filer			o
Non-accelerated filer			x			Smaller reporting company			x
						Emerging growth company			x

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

						Page
Explanatory Note						4
Cautionary Note Regarding Forward Looking Statements						5
Part I. Financial Information
Item 1.			Unaudited Condensed Consolidated Financial Statements			6
			Condensed Consolidated Balance Sheets			6
			Condensed Consolidated Statements of Operations and Comprehensive Loss			7
			Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)			8
			Condensed Consolidated Statements of Cash Flows			9
			Notes to Unaudited Condensed Consolidated Financial Statements			10
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			43
Item 4.			Controls and Procedures			44
Part II. Other Information
Item 1.			Legal Proceedings			46
Item 1A.			Risk Factors			46
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			92
Item 3.			Defaults Upon Senior Securities			92
Item 4.			Mine Safety Disclosures			92
Item 5.			Other Information			92
Item 6.			Exhibits			92
Signatures						95

EXPLANATORY NOTE

Unless otherwise stated in this report or the context otherwise requires, references to the “Company,” “Sema4” and “we,” “us” and “our” refer to (i) Mount Sinai Genomics, Inc. d/b/a as Sema4, or Legacy Sema4, prior to the consummation of our business combination with CM Life Sciences, Inc., or CMLS, on July 22, 2021 and (ii) Sema4 Holdings Corp. and its consolidated subsidiaries following the consummation of our business combination.

In addition, on April 29, 2022, we consummated the transactions contemplated by that certain Agreement and Plan of Merger, dated as of January 14, 2022 (as amended, the “Merger Agreement”), by and among us and our wholly-owned subsidiaries, Orion Merger Sub I, Inc. (“Merger Sub I”) and Orion Merger Sub II, LLC (“Merger Sub II” and, together with Merger Sub I, “Merger Subs”), and GeneDx, Inc. (“GeneDx”), a New Jersey corporation and wholly-owned subsidiary of OPKO Health, Inc. (“OPKO”), GeneDx Holding 2, Inc., which held 100% of GeneDx (“Holdco2”), and OPKO, which provided for, among other things, the acquisition of GeneDx from OPKO. Pursuant to the terms of the Merger Agreement, we acquired GeneDx through the merger of Merger Sub I with and into Holdco2 (the “First Merger”), with Holdco2 as the surviving corporation in the First Merger. Immediately after the consummation of the First Merger, as part of the same overall transaction, Holdco2, as the surviving corporation in the First Merger, merged with and into Merger Sub II (the “Second Merger” and, together with the First Merger, the “Mergers”), with Merger Sub II as the surviving company. After giving effect to the Mergers and the other transactions contemplated by the Merger Agreement, GeneDx was converted into a Delaware limited liability company and became our wholly-owned indirect subsidiary. At the closing of the Acquisition (as defined below), we paid OPKO gross cash consideration of $150 million and issued to OPKO 80 million shares of our Class A common stock. We refer to these transactions herein as the “Acquisition.” In addition, up to $150 million is payable following the closing of the Acquisition, if certain revenue-based milestones are achieved for each of the fiscal years ending December 31, 2022 and December 31, 2023. Concurrently with the closing of the Acquisition, we also issued and sold in private placement 50,000,000 shares of our Class A common stock to certain institutional investors for aggregate gross proceeds of $200 million (the “Acquisition PIPE Investment”). Unless stated otherwise in this report, all forward-looking information contained in this report does not take into account or give any effect to the impact of the Acquisition or the Acquisition PIPE Investment.

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, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or 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, or 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 to finance our operating requirements

•our expected losses;

•our expectations for incurring capital expenditures to expand our research and development and manufacturing capabilities;

•unforeseen circumstances or other disruptions to normal business operations, including supply chain interruptions and manufacturing constraints, arising from or related to the ongoing COVID-19 pandemic;

•our expectations for generating revenue or becoming profitable on a sustained basis;

•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, or 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;

•our stock price and its volatility;

•our ability to attract and retain key personnel;

•third-party payor reimbursement and coverage decisions;

•our reliance on third-party laboratories and service providers for our test volume in connection with our diagnostic solutions and data programs;

•our expectations for future capital requirements; and

•our ability to successfully implement our business strategy.

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.

			March 31, 2022 (unaudited)						December 31, 2021
Assets
Current assets:
Cash and cash equivalents			$	315,002					$	400,569
Accounts receivable, net			37,642						26,509
Due from related parties			125						54
Inventory, net			36,318						33,456
Prepaid expenses			17,241						19,154
Other current assets			4,096						3,802
Total current assets			$	410,424					$	483,544
Operating lease right-of-use assets			38,417						—
Property and equipment, net			60,976						62,719
Restricted cash			900						900
Other assets			6,953						6,930
Total assets			$	517,670					$	554,093
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses			$	68,880					$	64,801
Due to related parties			3,237						2,623
Contract liabilities			66						473
Short-term lease liabilities			5,072						—
Other current liabilities			23,384						33,387
Total current liabilities			$	100,639					$	101,284
Long-term debt, net of current portion			11,000						11,000
Long-term lease liabilities			57,478						—
Other liabilities			500						21,907
Warrant liability			15,177						21,555
Earn-out contingent liability			3,432						10,244
Total liabilities			$	188,226					$	165,990
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred Stock, $0.0001 par value: 1,000,000 and 0 shares authorized at March 31, 2022 and December 31, 2021, respectively; 0 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively			—						—
Class A common stock, $0.0001 par value, 380,000,000 shares authorized, 245,154,475 shares issued and outstanding at March 31, 2022 and $0.0001 par value: 380,000,000 shares authorized, 242,647,604 shares issued and outstanding at December 31, 2021			24						24
Additional paid-in capital			981,757						$	963,520
Accumulated deficit			(652,337)						(575,441)
Total stockholders’ equity			329,444						388,103
Total liabilities and stockholders’ equity			$	517,670					$	554,093

			Three months ended March 31,
			2022						2021 (1)
Revenue:
Diagnostic test revenue (including related party revenue of $170 and $33 for the three months ended March 31, 2022 and 2021, respectively)			$	52,495					$	62,760
Other revenue (including related party revenue of $74 and $27 for the three months ended March 31, 2022 and 2021, respectively)			1,446						1,441
Total revenue			53,941						64,201
Cost of services (including related party expenses of $1,056 and $278 for the three months ended March 31, 2022 and 2021, respectively)			48,316						68,524
Gross profit (loss)			5,625						(4,323)
Research and development			21,315						53,133
Selling and marketing			29,547						35,366
General and administrative			42,784						102,038
Related party expenses			1,284						1,797
Loss from operations			(89,305)						(196,657)
Other income (expense), net:
Change in fair market value of warrant and earn-out contingent liabilities			13,190						—
Interest income			27						21
Interest expense			(808)						(723)
Other income			—						5,584
Total other income (expense), net			12,409						4,882
Loss before income taxes			$	(76,896)					$	(191,775)
Income tax provision			—						—
Net loss and comprehensive loss			$	(76,896)					$	(191,775)
Weighted average shares outstanding of Class A common stock			244,368,743						549,778
Basic and diluted net loss per share, Class A common stock			$	(0.31)					$	(348.82)

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

			Three months ended March 31, 2022
			Preferred Stock															Class A Common Stock												Additional paid-in capital						Accumulated deficit						Total stockholders’ equity
			Shares						Par value									Shares						Par value
Balances at December 31, 2021																		242,647,604						$	24					$	963,520					$	(575,441)					$	388,103
Net loss			—						—									—						—						—						(76,896)						(76,896)
Stock option exercises			—						—									2,108,502						—						678						—						678
Stock based compensation expense			—						—									—						—						17,559						—						17,559
Vested restricted stock units converted to common stock			—						—									398,369
Balances at March 31, 2022			—						$	—								245,154,475						$	24					$	981,757					$	(652,337)					$	329,444

			Three months ended March 31, 2021 (1)
			Redeemable Convertible Preferred Stock															Class A Common Stock												Class B Common Stock												Additional paid-in capital						Accumulated deficit (1)						Total stockholders’ (deficit)
			Shares						Amount									Shares						Par value						Shares						Par value
Balances at December 31, 2020			171,535,213						$	334,439								124						$	—					130,557						$	—					$	—					$	(330,051)					$	(330,051)
Net loss			—						—									—						—						—						—						—						(191,775)						(191,775)
Common stock class B issued pursuant to stock options			—						—									—						—						618,204						—						—						—						—
Balances at March 31, 2021			171,535,213						$	334,439								124						$	—					748,761						$	—					$	—					(521,826)						(521,826)

(1) As previously disclosed in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, certain adjustments were made which impacted previously reported net loss for the first quarter of 2021 and the adjusted net loss is reflected as disclosed.

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

			Three months ended March 31,
			2022						2021 (1)
Operating activities
Net loss			$	(76,896)					$	(191,775)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense			5,803						4,902
Stock-based compensation expense			17,559						164,962
Change in fair value of warrant and earn-out contingent liabilities			(13,190)						—
Provision for excess and obsolete inventory			43						1,821
Non-cash lease expense			167						191
Amortization of deferred debt issuance costs			128						—
Change in operating assets and liabilities:
Accounts receivable			(11,132)						(1,296)
Inventory			(2,904)						(9,828)
Prepaid expenses and other current assets			1,596						(6,327)
Due to/from related parties			543						(688)
Other assets			(151)						—
Accounts payable and accrued expenses			3,932						3,951
Contract liabilities			(408)						1,027
Other current liabilities			(6,584)						(9,148)
Net cash used in operating activities			(81,494)						(42,208)
Investing activities
Purchases of property and equipment			(1,378)						(2,075)
Development of internal-use software assets			(2,535)						(2,919)
Net cash used in investing activities			(3,913)						(4,994)
Financing activities
Payment of deferred transaction costs			—						(1,254)
Finance lease principal payments			(862)						(1,052)
Long-term debt principal payments			—						(394)
Exercise of stock options			702						422
Net cash used in financing activities			(160)						(2,278)
Net decrease in cash, cash equivalents and restricted cash			(85,567)						(49,480)
Cash, cash equivalents and restricted cash, at beginning of period			401,469						118,960
Cash, cash equivalents and restricted cash, at end of period			$	315,902					$	69,480
Supplemental disclosures of cash flow information
Cash paid for interest			$	607					$	723
Cash paid for taxes			$	168					$	—
Purchases of property and equipment in accounts payable and accrued expenses			$	1,325					$	1,164
Software development costs in accounts payable and accrued expenses			$	717					$	1,570
Unpaid deferred transaction costs included in accounts payable and accrued expenses			$	227					$	4,228

(1) As previously disclosed in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, certain adjustments were made to certain current asset and liability accounts previously reported in the condensed balance sheets as of March 31, 2021. The adjustments are reflected accordingly as disclosed.

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

Sema4 Holdings Corp. (“Sema4 Holdings”) through its subsidiary Sema4 OpCo, Inc.,, formerly Mount Sinai Genomics Inc., a Delaware corporation (“Legacy Sema4”), as discussed further below, provides genomics-related diagnostic and information services and pursues genomics medical research. Legacy Sema4 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. Legacy Sema4 provides a variety of genetic diagnostic tests and information with a focus on reproductive health, including pediatric, oncology and other conditions. Legacy Sema4 primarily serves healthcare professionals who work with their patients and bills third-party payors across the United States, with a substantial portion of its diagnostic testing volume occurring in New York, California, Florida, Connecticut and New Jersey.

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 “Prior Merger Agreement”), dated February 9, 2021. On the Closing Date, S-IV Sub, Inc. (“Prior Merger Sub”) merged with and into the Legacy Sema4, with Legacy Sema4 surviving the merger as a wholly-owned subsidiary of CMLS (the “Prior Merger” and, together with the other transactions contemplated by the Prior Merger Agreement, the “Business Combination”). In connection with the consummation of the Business Combination, CMLS changed its name to “Sema4 Holdings Corp.” 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.

Prior to the Prior 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. See Note 3, “Business Combination,” for additional details.

Unless otherwise stated herein or unless the context otherwise requires, references in these notes to the “Company,” or “Sema4” refer to (i) Legacy Sema4 prior to the consummation of the Business Combination; and (ii) Sema4 Holdings and its subsidiaries following the consummation of the Business Combination.

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, 2021, 2020 and 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 21, 2021 filed on March 14, 2022 (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 the Transition Services Agreement ("TSA") and service agreements.

As discussed in the Company’s Annual Report, the Company identified the misclassification of certain expenses and out of period adjustments generally related to the recognition of cost of services. The impact of these adjustments were disclosed in the Company’s Annual Report and are reflected in the condensed consolidated statements of operations and comprehensive loss, condensed consolidated statement of redeemable convertible preferred stock and stockholders’ equity (deficit) and condensed consolidated statements of cash flows for the period ended March 31, 2021.

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 Form 10-Q.

The Company operates and manages its business as one reportable operating segment based on how the Chief Executive Officer, who is the Company’s chief operating decision maker (“CODM”), assesses performance and allocates resources across the business.

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, the capitalization of software costs and the valuation of stock-based awards, inventory, earn-out contingent liability and earn-out Restricted Stock Units (“RSUs”). Actual results could differ materially from those estimates, judgments and assumptions.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

The Company’s cash and cash equivalents are deposited with high-quality financial institutions. The Company has balances in financial institutions that exceed federal depository insurance limits. 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 customers 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 March 31, 2022 and December 31, 2021 were primarily from large managed care insurance companies and a reference laboratory. There was no individual patient 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 customer 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:

			Revenue												Accounts Receivable
			Three months ended March 31,												As of March 31,						As of December 31,
			2022						2021						2022						2021
Payor A			24%						14%						26%						15%
Payor B			*						*						19%						15%
Payor C			*						12%						*						*
Payor D			10%						12%						11%						*
*less than 10%

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 13% and 11% for the three months ended March 31, 2022 and 2021, respectively. This risk is managed by maintaining a target quantity of surplus stock.

Beginning in April 2020, the Company’s diagnostic test volumes decreased significantly as compared to the prior year as a result of the initial outbreak of the COVID-19 pandemic and the related limitations and priorities across the healthcare system. In response, beginning in May 2020, the Company entered into several service agreements with state governments and healthcare institutions to provide testing for the presence of COVID-19 variants. While test volumes have since improved, the Company continues to experience changes in the mix of tests due to the impact of the COVID-19 pandemic. COVID-19 could continue to have a material impact on the Company’s results of operations, cash flows and financial condition for the foreseeable future.

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law which was a stimulus bill that, among other things, provided assistance to qualifying businesses and individuals and included funding for the healthcare system. During 2020, as part of the stimulus provided by the CARES Act, the Company received $5.4 million, comprised of $2.6 million received under the Provider Relief Fund (“PRF”) distribution and $2.8 million received under the Employee Retention Credit (“ERC”) distribution which was recorded in other current liabilities and reflected in this balance as of March 31, 2022 and December 31, 2021.

During the three months ended March 31, 2021, the Company received an additional $5.6 million under the PRF distribution, which was recognized in other income in the condensed consolidated statements of operations and comprehensive loss.

Following the Company’s announcement that it would discontinue COVID-19 testing services by March 31, 2022, the Company no longer provides COVID-19 testing services. During the three months ended March 31, 2022, the Company wrote off an accounts receivable balance of $0.5 million related to COVID-19 testing services.

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 in money market funds. Carrying values of cash equivalents approximate fair value due to the short-term nature of these instruments.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets that sum to the total of the same amounts shown on the condensed consolidated statements of cash flows (in thousands):

			As of March 31, 2022						As of December 31, 2021
Cash and cash equivalents			$	315,002					$	400,569
Restricted cash			900						900
Total			$	315,902					$	401,469

Restricted cash as of March 31, 2022 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”).

As of the consummation of the Prior Merger in July 2021, there were 21,995,000 warrants to purchase shares of Class A common stock outstanding, including 14,758,333 public warrants and 7,236,667 private placement warrants. As of December 31, 2021, there were 21,994,972 warrants to purchase shares of Class A common stock outstanding, including 14,758,305 public warrants and 7,236,667 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 $11.50 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 $18.00 as described below:

•in whole and not in part;

•at a price of $0.01 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 $18.00 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.

•in whole and not in part;

•at $0.10 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 $10.00 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 $18.00 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

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.

In connection with the Prior Merger, all Legacy Sema4 stockholders and option holders at that time became entitled to a pro rata share of 19,021,576 earn-out shares and earn-out RSUs. 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 the fair value of the earn-out shares issued to the Legacy Sema4 stockholders as of March 31, 2022 was $3.4 million.

As for the earn-out RSUs for the Legacy Sema4 option holders, a total of 2.7 million RSUs were granted on December 9, 2021. The vesting of such arrangement is 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 is greater than or equal to $13 (Triggering Event I), $15 (Triggering Event II) and $18 (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 $0.5 million of stock-based compensation expense in relation to the earn-out RSUs for the quarter ended March 31, 2022. In the event that any earn-out RSUs that are forfeited as a result of a failure to achieve the service requirement, the underlying shares will be reallocated on an annual basis to the Legacy Sema4 stockholders and to the Legacy Sema4 option holders who remain employed as of the date of such reallocation. The Company accounts for the re-allocations to Legacy Sema4 option holders as new grants.

The estimated fair value of the earn-out is determined using a Monte Carlo valuation analysis.

The Company capitalizes certain costs incurred related to the development of its software applications for internal use during the application development state. If a project constitutes an enhancement to existing software, the Company assesses whether the enhancement creates additional functionality to the software, thus qualifying the work incurred for capitalization. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred. Once the project is available for general release, capitalization ceases and the Company estimates the useful life of the asset and begins amortization.

During the three months ended March 31, 2022, the Company’s Compensation Committee of the Board of Directors approved by written consent dated February 17, 2022 a restructuring plan which was executed by management and

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.

In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), which requires lessees to recognize right-of-use assets and lease liabilities for most leases on their balance sheets. Expense recognition for lessees under ASC 842 is similar to current lease accounting. ASC 842 requires enhanced disclosures to help the financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted ASC 842 as of January 1, 2022, utilizing the modified retrospective adoption approach. In transition to the ASC 842, the Company elected to use the package of practical expedients permitted under the transition guidance that allowed us to not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases. Additionally, the Company did not elect the hindsight practical expedient which would have permitted the use of hindsight in determining the lease term and assessing impairment. The Company elected to combine lease and non-lease components that are fixed and also elected not to recognize right-of-use assets and lease liabilities for leases with terms of 12 months or less (“short-term leases”). The adoption of the ASC 842 as of January 1, 2022, resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of $39.2 million and $42.2 million, respectively. The adoption did not have material impact on finance leases. The adoption did not have material impact on the condensed consolidated statements of operations and comprehensive loss. Refer to “Note 9 Leases” for a discussion of the Company’s lease accounting following the adoption of ASC 842.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The Company adopted ASU 2021-10 effective January 1, 2022. The Company did not receive any such grants during the three months ended March 31, 2022.

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. As an emerging growth company, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, with early adoption permitted. Application of the amendments is through a cumulative-effect adjustment to the opening retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

As discussed in Note 1, on July 22, 2021, the Company consummated the Business Combination and received net cash proceeds of $510.0 million.

•Holders of 10,188 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 $10.00 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 $230,665,220 of cash and the Legacy Sema4 stockholders receiving an aggregate of 178,336,298 shares of common stock of the Company.

•Pursuant to subscription agreements entered into on February 9, 2021, certain investors agreed to subscribe for an aggregate of 35,000,000 newly-issued shares of common stock at a purchase price of $10.00 per share for an aggregate purchase price of $350,000,000 (the “PIPE Investment”). Concurrently with the closing of the Business Combination, the Company consummated the PIPE Investment.

•After giving effect to the Prior Merger, the redemption of public shares and the conversion of the CMLS Class B common stock as described above, and the consummation of the PIPE Investment, there were 240,190,402 shares of the Company’s 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 Prior Merger in additional paid-in capital. Upon consummation of the Prior 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.

The Company’s diagnostic test revenue contracts typically consist of a single performance obligation to deliver diagnostic testing services to the ordering facility or patient and therefore allocation of the contract transaction price is generally not applicable. Revenue from diagnostic testing services is recorded at the estimated transaction price, subject to the constraint for variable consideration, upon transfer of control of the service. Control over diagnostic testing services is generally transferred at a point in time when the customer obtains control of the promised service which is upon delivery of the test.

The Company enters into both short-term and long-term project-based collaboration and service agreements with third parties, whereby the Company provides diagnostic testing, research and related data aggregation reporting services. The consideration to which the Company is entitled pursuant to its collaboration and service agreements includes non-refundable upfront payments, fixed and variable payments based upon the achievement of certain milestones during the contract term. Non-refundable upfront payments are generally received in advance of performing the services and, therefore, are recorded as a contract liability upon receipt. Fixed and variable milestone payments are included in the transaction price only when it is probable that doing so will not result in a significant reversal of cumulative revenue recognized when the uncertainty associated with the milestone is subsequently resolved. Revenue for such collaboration and service agreements is recognized over time using an input measure based on costs incurred to satisfy the performance obligation.

The following table summarizes the Company’s disaggregated revenue by payor category (in thousands):

			Three months ended March 31,
			2022						2021
Diagnostic test revenue
Patients with third-party insurance			$	47,462					$	46,197
Institutional customers			4,031						15,664
Self-pay patients			1,002						899
Total diagnostic test revenue			52,495						62,760
Other revenue			1,446						1,441
Total			$	53,941					$	64,201

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 March 31, 2022, the quarterly change in estimate resulted in a net $3.6 million increase to revenue for tests in which the performance obligation of delivering the test results was met in prior periods. The change in estimate is 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 change in estimate did not result in material adjustments to the Company’s previously reported revenue or accounts receivable amounts.

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 March 31, 2022. The revenues under the agreements are estimated to be approximately $10.3 million. The Company expects to recognize the majority of this revenue over the next 3 years.

Contract assets consist of the Company’s right to consideration that is conditional upon its future performance. Contract assets arise in collaboration and service agreements for which revenue is recognized over time but the Company’s right to bill the customer is contingent upon the achievement of contractually-defined milestones.

Contract liabilities consist of customer payments in excess of revenues recognized. For collaboration and service agreements, the Company assesses the performance obligations and recognizes contract liabilities as current or non-current based upon forecasted performance.

A reconciliation of the beginning and ending balances of contract assets and contract liabilities is shown in the table below (in thousands):

			Contract Assets						Contract Liabilities
December 31, 2021			$	3,296					$	3,769
Contract asset additions			453						—
Customer prepayments			—						350
Revenue recognized			—						(304)
March 31, 2022			$	3,749					$	3,815

The Company presents contract assets and contract liabilities with respect to customer contracts on a net basis on its condensed consolidated balance sheets. As of March 31, 2022 and December 31, 2021, $0.1 million and $0.5 million is recorded as current contract liabilities, respectively.

Revenues recognized for the three months ended March 31, 2022 and March 31, 2021 that were included in the contract liability balance at the beginning of each period were $0.5 million and $0.5 million, respectively.

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 on the condensed consolidated balance sheets as current or non-current based upon forecasted performance.

As of March 31, 2022 and December 31, 2021, the Company had outstanding deferred costs to fulfill contracts of $1.5 million and $1.8 million, respectively. As of March 31, 2022 and December 31, 2021, all outstanding deferred costs were recorded as other current assets.

Amortization of deferred costs was $0.3 million and $0.3 million for the three months ended March 31, 2022 and 2021, respectively. The amortization of these costs is recorded in the cost of services on the condensed consolidated statements of operations and comprehensive loss.

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 liability and long-

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 March 31, 2022, the long-term debt was recorded at its carrying value of $11.0 million in the condensed consolidated balance sheet. The fair value was $9.5 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 March 31, 2022
			Total						Level 1						Level 2						Level 3
Financial Assets:
Money market funds			$	62,282					$	62,282					$	—					$	—
Total financial assets			$	62,282					$	62,282					$	—					$	—
Financial Liabilities:
Public warrant liability			$	10,183					$	10,183					$	—					$	—
Private warrant liability			4,993						—						4,993						—
Earn-out contingent liability			3,432						—						—						3,432
Total financial liabilities			$	18,608					$	10,183					$	4,993					$	3,432

			As of December 31, 2021
			Total						Level 1						Level 2						Level 3
Financial Assets:
Money market funds			$	385,370					$	385,370					$	—					$	—
Total financial assets			$	385,370					$	385,370					$	—					$	—
Financial Liabilities:
Public warrant liability			$	14,463					$	14,463					$	—					$	—
Private warrant liability			7,092						—						7,092						—
Earn-out contingent liability			10,244						—						—						10,244
Total financial liabilities			$	31,799					$	14,463					$	7,092					$	10,244

Of the $315.0 million cash and cash equivalents presented on the condensed consolidated balance sheets as of March 31, 2022, $62.3 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.

			March 31, 2022						December 31, 2021
Stock price			$3.07						$4.46
Expected volatility			72.5%						62.5%
Expected term (in years)			1.3						1.6
Risk-free interest rate			1.83%						0.58%

The earn-out contingent liability is categorized as Level 3 of the fair value hierarchy as the Company utilizes unobservable inputs in estimating volatility rate. The fair value determined and recorded as of December 31, 2021 was $10.2 million and during the three months ended March 31, 2022 a gain of $6.8 million was recorded in the 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.

There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.

Property and equipment, net consisted of the following (in thousands):

			As of March 31, 2022						As of December 31, 2021
Laboratory equipment			$	27,838					$	28,552
Equipment under finance leases			21,384						21,384
Leasehold improvements			21,915						21,905
Capitalized software			27,797						25,693
Building under finance lease			6,276						6,276
Construction in-progress			2,709						940
Computer equipment			7,536						6,634
Furniture, fixtures and other equipment			3,230						3,241
Total property and equipment			118,685						114,625
Less: accumulated depreciation and amortization			(57,709)						(51,906)
Property and equipment, net			$	60,976					$	62,719

For the three months ended March 31, 2022 and 2021, depreciation and amortization expense was $5.8 million and $4.9 million. This included software amortization expense of $1.6 million and $1.2 million for the three months ended

			Three months ended March 31,
			2022						2021
Cost of services			$	2,816					$	3,058
Research and development			1,849						1,251
Selling and marketing			1						—
General and administrative			1,137						593
Total depreciation and amortization expenses			$	5,803					$	4,902

For three months ended March 31, 2022 and 2021, the Company incurred certain related party costs. There were no expenses recognized under the TSA for the three months ended March 31, 2022 and $1.4 million for the three months ended March 31, 2021 which is presented within related party expenses in the condensed consolidated statements of operations and comprehensive loss. The Company had no TSA payables due to ISMMS as of March 31, 2022 and December 31, 2021.

Expenses recognized pursuant to other service arrangements with ISMMS, including certain sub-lease arrangements the Company has through ISMMS, totaled $1.9 million and $0.7 million for the three months ended March 31, 2022 and 2021, 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 on the condensed consolidated statements of operations and comprehensive loss depending on the particular activity to which the costs relate. Payables due to ISMMS for the other service arrangements were $2.5 million $2.6 million as of March 31, 2022 and December 31, 2021, 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, since the closing of the Prior Merger in July 2021 the Company has purchased $0.7 million of diagnostic testing kits and materials of which $0.4 million was recorded in cost of services for the three months ended March 31, 2022 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 $0.7 million and $0.1 million as of March 31, 2022 and December 31, 2021, respectively.

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 March 31,
			2022						2021
Cost of services			$	1,056					$	278
Related party expenses			1,284						1,797
Total related party costs			$	2,340					$	2,075

The SVB Agreement contains affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, and dividends and other distributions.

No amounts have been drawn under the SVB Agreement as of March 31, 2022.

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”). 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 $7.3 million has been forgiven as of March 31, 2022. 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.

The outstanding loan balance from the DECD Loan Agreement was $11.0 million as of March 31, 2022 and December 31, 2021.

As of March 31, 2022, long-term debt matures as follows (in thousands):

2022 (remainder of year)			$	—
2023			875
2024			2,131
2025			2,174
2026			2,218
Thereafter			3,602
Total maturities of long-term debt			11,000
Less: current portion of long-term debt			—
Total long-term debt, net of current maturities			$	11,000

In August 2020, the Company entered into a loan and security agreement with a bank (the “Master Loan Agreement”), in which the Company received a loan of $6.3 million and deposited the proceeds into a deposit account held by the bank. The Company was required to make sixty consecutive monthly payments of principal and interest at a fixed monthly amount of $0.1 million beginning in November 2020. Interest payments were fixed at an annual interest rate of 4.75%.

In July 2021, the Company terminated the Master Loan Agreement by paying off the full amount, including $5.4 million principal and interest and $0.1 million in early payment penalties assessed pursuant to the terms of the agreement.

In December 2020, the Company entered into a lease agreement with a lender whereby the Company agreed to sell certain equipment and immediately lease back the equipment, resulting in proceeds of $3.6 million. Per the terms of the agreement, a financial institution issued an irrevocable standby letter of credit to the lender for $3.6 million. The Company was required to make sixty consecutive monthly payments of principal and interest at a fixed monthly amount of $0.1 million beginning in February 2021. Interest payments were fixed at an annual interest rate of 3.54%.

The Company was required to maintain an aggregate amount on deposit equal to at least 105% of the value of any outstanding letters of credit issued by the financial institution on the Company’s behalf. The letter of credit was required to be in place until all obligations had been paid in full. Further, the Company was required to furnish annual audited financial statements and other financial information to the lender on a regular basis.

In July 2021, the Company terminated the Master Lease Agreement by paying off the full amount, including $3.3 million principal and interest and early payment penalties of $0.2 million assessed pursuant to the terms of the agreement.

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

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 they will expire in 2034. 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 on the condensed consolidated balance sheets as of March 31, 2022 and consolidated balance sheets as of December 31, 2021.

In April 2019, the Company entered into a sublease agreement 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 the Company 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.

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.

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 used for the Stamford Lease is 13.1%, which is used to measure the operating and finance lease liability.

The tables below present financial information associated with the Company’s leases. This information is only presented as of, and for the three months ended, March 31, 2022 because, the Company adopted the ASC 842 using a transition method that does not require application to periods prior to adoption (in thousands).

Classification

March 31, 2022

Assets

Operating lease assets

Operating lease right-of-use assets

$

38,417

Finance lease assets

Property and Equipment, net

13,190

Total lease assets

$

51,607

Liabilities

Current

Operating

Due to related parties

$

566

Short-term lease liabilities

1,892

Finance

Due to related parties

304

Short-term lease liabilities

3,180

Non-current

Operating

Long-term lease liabilities

39,649

Finance

Long-term lease liabilities

17,829

Total lease liabilities

$

63,420

Lease cost						Three months ended March 31, 2022
Operating lease cost
Operating lease cost						$	1,380
Short-term lease cost						169
Variable lease cost						127
Total operating lease cost						$	1,676
Finance lease cost
Depreciation and amortization of leased assets						$	912
Interest on lease liabilities						552
Total finance lease cost						$	1,464
Total lease cost						$	3,140

Future minimum lease payments under non-cancellable leases as of March 31, 2022 are as follows:

Maturity of lease liabilities						Operating leases						Finance leases						Total
2022 (remainder of the year)						$	3,862					$	3,808					$	7,670
2023						4,338						3,584						7,922
2024						4,440						2,763						7,203
2025						4,835						2,451						7,286
2026						4,949						2,003						6,952
Thereafter						51,920						49,884						101,804
Total						$	74,344					$	64,493					$	138,837
Less: imputed interest						$	(32,237)					$	(43,180)					$	(75,417)
Present value of lease liabilities						$	42,107					$	21,313					$	63,420

						March 31, 2022
Weighted-average remaining lease term (years)
Operating leases						13.5
Finance leases						17.8
Weighted-average discount rate
Operating leases						6.8%
Finance leases						10.5%
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases						$1,236
Operating cash flows from finance leases						$552
Financing cash flows from finance lease						$862

In the normal course of business, the Company enters into various purchase commitments primarily related to material and service agreements, laboratory supplies and software. At March 31, 2022, the Company’s total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were $19.4 million.

The Company is a party to various actions and claims arising in the normal course of business. The Company does not believe that the outcome of these matters will have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows. However, no assurance can be given that the final outcome of such proceedings will not materially impact the Company’s condensed consolidated financial condition or results of operations.

The Company was not a party to any material legal proceedings as of March 31, 2022, nor is it a party to any material legal proceedings as of the date of issuance of these unaudited condensed consolidated financial statements.

The Company’s 2017 Equity Incentive Plan (the “2017 Plan”), as amended in February 2018, allowed the grant of options, restricted stock awards, stock appreciation rights and restricted stock units. No options granted under the 2017 Plan are exercisable after 10 years from the date of grant, and option awards generally vest over a four-year period.

The 2017 Plan was terminated in connection with the adoption of the Company's 2021 Equity Incentive Plan (the "2021 Plan"). Any awards granted under the 2017 Plan that remained outstanding as of the Closing Date and were converted into awards with respect to the Company’s Class A common stock in connection with the consummation of the Business Combination continue to be subject to the terms of the 2017 Plan and applicable award agreements, except for a modification of the repurchase provision, which is discussed further below.

On July 22, 2021, in connection with the Business Combination, the 2021 Plan became effective and 32,734,983 authorized shares of Class A common stock were reserved for issuance thereunder. This Plan will be administered by the Compensation Committee of the Company’s Board of Directors, including determination of the vesting, exercisability and payment of the awards to be granted under this Plan. No awards granted under the 2021 Plan are exercisable after 10 years from the date of grant, and the awards granted under the 2021 Plan generally vest over a four-year period on a graded vesting basis.

The 2021 Employee Stock Purchase Plan (the “2021 ESPP”) became effective in connection with the Business Combination. The 2021 ESPP authorizes the issuance of shares of Class A common stock pursuant to purchase rights granted to employees. On each January 1 of each of 2022 through 2031, the aggregate number of shares of Class A common stock reserved for issuance under the 2021 Plan may be increased automatically by the number of shares equal to one percent (1%) of the total number of shares of all classes of common stock issued and outstanding immediately preceding December 31. The Company did not make any grants of purchase rights under the 2021 ESPP during the quarter ended March 31, 2022. A total of 7,229,799 shares of Class A common stock have been reserved for future issuance under the 2021 ESPP.

Under the 2017 Plan, the Company had a call option to repurchase awards for cash from the plan participants upon termination of the participant’s employment or consulting agreement (the “2017 Plan Call Option”). The options granted under the 2017 plan were accounted for as liability awards due to the 2017 Plan Call Option. The Company had a history of repurchase practice and the intention to repurchase the vested options. Therefore, the fair value of the liability awards was remeasured at each reporting period until the stockholder bears the risks and rewards of equity ownership for a reasonable period of time, which the Company concludes is at least six months.

Upon consummation of the Business Combination, the Company’s Board of Directors waived the Company’s right under the 2017 Plan Call Option to repurchase awards for cash from the plan participants upon termination of the participant’s employment or consulting agreement. As such, the Company modified the liability awards to equity awards and reclassified the modification date fair value of the awards to stockholders’ equity in the condensed consolidated financial statements as of July 22, 2021.

All stock options granted under the 2021 Plan are accounted for as equity awards.

The following summarizes the stock option activity, which reflects the conversion of the options granted under the 2017 Plan into awards with respect to the Company Class A common stock in connection with the consummation of the Business Combination (in thousands, except share and per share amounts):

						Stock Options Outstanding						Weighted Average Exercise Price
Balance at December 31, 2021						30,905,543						$	1.24
Options granted						851,884						$	3.37
Options exercised						(2,108,502)						$	0.32
Options forfeited or canceled						(759,629)						$	2.98
Balance at March 31, 2022						28,889,296						$	1.33
Options exercisable at March 31, 2022						21,620,867						$	0.54

As of March 31, 2022, unrecognized stock-based compensation cost related to the unvested portion of the Company’s stock options was $22.1 million, which is expected to be recognized on a graded-vesting basis over a weighted-average period of 1.5 years.

The fair value of the stock option awards for the period ended March 31, 2022, and March 31, 2021 were estimated using the Black-Scholes option pricing model with the following assumptions:

			Three Months ended March 31,
			2022						2021
Expected volatility			65.20% - 67.60%						68.50%- 75.60%
Expected term (in years)			5.48-6.06						0.50- 1.75
Risk-free interest rate			1.65%-1.70%						0.05%- 0.16%
Dividend yield			—						—
Fair value of Class A common stock			$3.29-$3.45						$4.57- $12.51

The Company estimated a volatility factor for the Company’s options based on analysis of historical share prices of a peer group of public companies. The Company did not rely on the volatility of the Company’s Class A common stock because its limited trading history. The Company estimated the expected term of options granted using the “simplified method,” which is the mid-point between the vesting date and the ending date of the contractual term. The Company did not rely on the historical holding periods of the Company’s options due to the limited availability of exercise data. The Company used a risk-free interest rate based on the U.S. Treasury yield curve in effect for bonds with maturities consistent with the expected term of the option.

The Company issued time-based RSUs to employees under the 2021 Plan. The RSUs automatically convert to shares of Class A common stock on a one-for-one basis as the awards vest. The Company measures the value of RSUs at fair value based on the closing price of the underlying Class A common stock on the grant date. The RSUs granted generally vest over a four year vesting period from the grant date, however, the Company also granted certain RSUs during the three

			Restricted Stock Units Outstanding						Weighted Average Grant Date Fair Value Per Unit
Balance at December 31, 2021			12,589,558						$7.64
Restricted Stock Units granted			762,190						$3.48
Restricted Stock Units vested			(398,369)						$7.63
Restricted Stock Units forfeited			(830,620)						$7.62
Balance at March 31, 2022			12,122,759						$7.38

As of March 31, 2022, unrecognized stock-based compensation cost related to the unvested portion of the Company’s RSUs was $60.2 million, which is expected to be recognized on a graded-vesting basis over a weighted-average period of 1.6 years.

The grant date fair value determined for Triggering Event I, II and III was $1.82, $1.39 and $0.94 per unit, respectively. Any re-allocated RSUs due to the Sema4 Legacy option holders’ forfeiture activities during the three months ended March 31, 2022 were accounted for as new grants and the fair value determined for Triggering Event I, II and III was $0.29, $0.21 and $0.12 per unit, respectively. Based on the grant date fair value, the Company expects to record total expense related to the earn-out RSU awards of $2.7 million without considering the impact of the Sema4 Legacy option holders’ forfeiture activities. The Company expects to recognize the stock-compensation cost over the longer of the derived service period or service period.

The Company historically granted SAR to one employee and one consultant with exercise condition of a liquidation event. As a result of the Business Combination, settlement of the outstanding vested SARs in exchange for a cash payment and to cancel the outstanding unvested SARs was agreed upon and an expense of $3.8 million related to the vested SAR was recognized by the Company. There were no outstanding SARs as of March 31, 2022.

During the three months ended March 31, 2022, the Company recorded a reversal of stock-based compensation of $5.2 million due to forfeiture activities upon employee terminations. Stock-based compensation expense for all awards granted and outstanding is included within the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

			Three months ended March 31,
			2022						2021
Cost of services			$	1,381					$	18,475
Research and development			4,341						38,187
Selling and marketing			2,825						18,688
General and administrative			9,012						89,612
Total stock-based compensation expense			$	17,559					$	164,962

Basic and diluted loss per share attributable to common stockholders was calculated as follows (amounts in thousands, except for share and per share amounts):

			Three months ended March 31,
			2022						2021
Numerator:
Net loss attributable to common stockholders			$	(76,896)					$	(191,775)
Denominator:
Denominator for basic and diluted earnings per share-weighted-average common shares			244,368,743						549,778
Basic and diluted loss per share			$	(0.31)					$	(348.82)

As a result of the Prior Merger, the Company has retroactively adjusted the weighted-average number of shares of common stock outstanding prior to the Prior Merger by multiplying them by the conversion ratio of 123.8339 used to determine the number of shares of common stock into which they converted. The common stock issued as a result of the redeemable convertible preferred stock conversion upon closing of the Prior Merger was included in the basic and diluted earnings/(loss) per share calculation on a prospective basis.

Prior to the consummation of the Prior Merger, the Company applied the two-class method to calculate its basic and diluted net loss per share of common stock, as there were outstanding Class B common stock and redeemable convertible preferred stock that were participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. As the securities were all converted into Sema4 Holdings Class A common stock upon consummation of the Prior Merger, all outstanding Legacy Sema4 Class B common stock has been retroactively converted to the Sema4 Holdings Class A common stock.

The following tables summarize the outstanding shares of potentially dilutive securities that were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been anti-dilutive:

			Three months ended March 31,
			2022						2021
Outstanding options and RSUs to purchase Class A common stock			41,012,055						29,608,717
Outstanding warrants			21,994,972						—
Outstanding earn-out shares			16,611,117						—
Outstanding earn-out RSUs			2,410,459						—
Redeemable convertible preferred stock (on an if-converted basis)			—						171,535,214
Total			82,028,603						201,143,931

On April 29, 2022, the Company completed the acquisition (the “Acquisition”) of GeneDx LLC (“GeneDx”), from OPKO Health Inc. (“OPKO”). Sema4 acquired GeneDx for an upfront payment of $150 million in cash, subject to adjustment, plus 80 million shares of Sema4’s Class A common stock, with up to an additional $150 million payable if certain revenue-based milestones are achieved over the next two years (which will be payable in cash or shares of Sema4’s Class A common stock at Sema4’s discretion). Based on the closing stock price of Sema4’s Class A common stock as of April 29, 2022, the trading day on the closing of the transaction, the total upfront consideration represents approximately $322 million, subject to adjustment, and the total aggregate consideration including potential milestones is approximately $472 million. The transaction was announced on January 18, 2022 and the issuance of the shares of Sema4’s Class A common stock in connection with the acquisition, among other proposals, received approval from Sema4 stockholders on April 27, 2022.

In connection with the Acquisition of GeneDx, the Company also closed a private placement financing (the “Acquisition PIPE Investment”) in which it issued 50 million shares of Sema4’s Class A common stock at a price of $4.00 per share with a syndicate of institutional investors, receiving gross proceeds of $200 million.

On May 2, 2022, the Company’s Compensation Committee of the Board of Directors approved by written consent for the Company to implement an employee restructuring plan, which is intended to reduce costs and optimize its organizational and operational efficiency. The Company’s management executed the plan and expects to recognize expenses of $5.4 million during the second quarter of 2022. The costs primarily consist of the cost of benefits provided pursuant to the severance programs for the employees impacted by the plan and third party consulting costs expected to be incurred.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our audited financial statements for the year ended December 31, 2021 and the related notes in our Annual Report on Form 10-K for the year ended December 31, 2021. 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.

We are a patient-centered, health intelligence company with a mission to use artificial intelligence, or AI, and machine learning to enable personalized medicine for all. By leveraging leading data scientists and technology, our platform powers remarkable and unique insights that transform the practice of medicine including how disease is diagnosed, treated, and prevented.

On June 1, 2017, we signed a contribution and funding agreement and other agreements with Icahn School of Medicine at Mount Sinai, or ISMMS, whereby ISMMS contributed certain assets and liabilities related to our operations, provided certain services to us, and also committed to funding us up to $55.0 million in future capital contributions in exchange for equity in Legacy Sema4, of which $55.0 million was drawn as of December 31, 2019. Following the transaction, we commenced operations as a commercial entity that could effectively engage diverse patient populations and health care institutions at scale.

We have since established and deployed our comprehensive and integrated genomic and clinical data platform and established a mature diagnostic testing business. We now maintain a database that includes more than 12 million de-identified individual clinical records, many with genomic profiles. We also manage a data asset over 49 petabytes in size, that has been expanding at more than 1 petabyte per month with an accelerating growth rate.

Currently, we derive the majority of our revenue from our diagnostic test solutions. Our diagnostic business generates revenue and engages with healthcare professionals working with patients primarily through our Women’s Health and Oncology solutions.

Our Women’s Health solutions sequence and analyze an industry-leading number of genes and use interpretive information tools to translate raw sequencing and clinical data efficiently and accurately into digestible clinical reports that guide decision-making by patients and physicians. Our Oncology diagnostic solutions feature both somatic tumor profiling and hereditary cancer screenings, along with a foundational whole exome and whole transcriptome sequencing approach. Our Sema4 Signal Hereditary Cancer solution determines if a patient carries an inherited genetic change that increases the risk of cancer or informs on cancer treatment. We believe our Signal Whole Exome and Transcriptome solution is one of the most comprehensive molecular profiling solutions from a commercial entity to receive New York State approval. Beginning in May of 2020 through March 31, 2022, we also provided diagnostic testing services to identify the presence of COVID-19.

We have also expanded beyond diagnostic testing to enter into service agreements with third parties to provide diagnostic testing, research, and related data aggregation reporting services. We have established and continue to seek strategic relationships with pharmaceutical and biotech, or Biopharma, companies to enable innovation across the entire drug lifecycle, from next-generation drug discovery and development, to post-market efficacy surveillance, to informing on bioavailability, toxicity, tolerability, and other features critical to drug development.

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 the section titled “Item 1A. Risk Factors” for more information.

A test is resulted once the appropriate workflow is completed and details are provided to the ordered patients or healthcare professional for reviews, which corresponds to the timing of our revenue recognition. We believe the number of

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. 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.

We expect to continue to focus our resources on increasing the adoption of, and expanding coverage and reimbursement for, our current 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.

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.

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.

We are seeking to leverage and deploy our Centrellis and Traversa platforms to develop a pipeline of future disease-specific research and diagnostic and therapeutic products and services. We have limited experience in the development or commercialization of clinical or research products in connection with our database and our Centrellis platform.

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.

We use the following key financial and operating metrics to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. These key financial and operating metrics should be read in conjunction with the following discussion of our results of operations

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 volumes drive database diversity and enable potential identification of variants of unknown significance and population-specific insights. The number of tests resulted is a key indicator 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.

During the three months ended March 31, 2022, we resulted 151,264 tests in our laboratories, 66,339 tests of which were for COVID-19, compared to the three months ended March 31, 2021, in which we resulted 237,729 tests in our laboratories, 170,784 of which were for COVID-19. This 27% increase in resulted volumes, excluding COVID-19 tests volumes, largely resulted from an increase in our oncology testing.

COVID-19 has had, and continues to have, an extensive impact on the global health and economic environments since the initial outbreak in March 2020.

While test volumes have since improved, we continue to experience changes in the mix of tests due to the impact of COVID-19. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat it and the economic impact on local, regional, national and international markets and supply chains. Therefore, COVID-19 could continue to have a material impact on our results of operations, cash flows, and financial condition for the foreseeable future.

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), was signed into law which was a stimulus bill that, among other things, provided assistance to qualifying businesses and individuals and included funding for the healthcare system. We received $5.4 million in 2020 as part of the stimulus, comprised of $2.6 million received under the Provider Relief Fund (the “PRF”), and $2.8 million received under the Employee Retention Credit (the “ERC”). In 2021, we received an additional $5.6 million under the PRF.

Funds provided under the PRF to healthcare providers are not loans and will not be required to be repaid; however, as a condition to receiving these payments, providers must agree to certain terms and conditions and submit sufficient documentation demonstrating that the funds are being used for healthcare-related expenses or lost revenue attributable to the COVID-19 pandemic. We have concluded it is probable that all terms and conditions associated with the funds received under the PRF distribution have been met. As a result, we recorded the funds received under the PRF in other income in the statements of operations and comprehensive loss during the periods in which we received the funds.

Funds provided under the ERC are refundable tax credits for 50% of qualified wages paid to employees during the pandemic. A company is eligible for the ERC if it has not received a Paycheck Protection Program loan under the CARES Act and (1) its operations have been fully or partially suspended because of COVID-19 or (2) its gross receipts in a calendar quarter in 2020 declined by more than 50% from the same period in 2019. At the time of applying for the ERC, we concluded that it was reasonably possible the eligibility requirements would be met; however, due to a change in circumstances, we are re-evaluating our position. As such, we deferred the recognition of the funds received under the ERC and recorded the proceeds in other liabilities on the condensed consolidated balance sheets.

At this time, we are not certain of the availability, extent or impact of any future relief provided under the CARES Act or other stimulus initiatives.

In January 2022, we and our wholly-owned subsidiaries, Orion Merger Sub I, Inc., or Merger Sub I, and Orion Merger Sub II, LLC, or Merger Sub II, entered into an Agreement and Plan of Merger and Reorganization (which we refer to, as amended, as the “Merger Agreement”), with GeneDx, Inc., a New Jersey corporation, or GeneDx, and a wholly-owned subsidiary of OPKO Health, Inc., or OPKO, GeneDx Holding 2, Inc., or Holdco, and OPKO to acquire 100% of GeneDx (which we refer to as the “Acquisition”). Subject to the terms and conditions of the Merger Agreement, we agreed to pay consideration to OPKO for the Acquisition of (i) $150 million in cash at the closing of the Acquisition, subject to certain

The Acquisition closed on April 29, 2022. We expect to leverage the combined health information database of Sema4 and GeneDx to partner with additional health systems and biopharma companies to transform patient care and therapeutic development and enable precision medicine for all.

Concurrently with the execution of the Merger Agreement, we entered into subscription agreements with certain institutional investors, pursuant to, and on the terms and subject to the conditions of which, these investors collectively subscribed for 50 million shares of our Class A common stock for an aggregate purchase price equal to $200 million (which we refer to as the “Acquisition PIPE Investment”). The Acquisition PIPE Investment was consummated substantially concurrently with the closing of the Acquisition.

We recognize revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration which we expect to be entitled to in exchange for those goods or services.

We primarily generate revenue from performing diagnostic testing services for three groups of customers: healthcare professionals working with patients with third-party insurance coverage or without third-party insurance coverage or those who elect to self-pay; and institutional clients, such as hospitals, clinics, state governments and reference laboratories. Customers are billed upon delivery of test results. The amount of revenue recognized for diagnostic testing services depends on a number of factors, such as 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 payers, enter into contracts with institutions, and increase our reimbursement rate for tests performed.

We generate revenue from providing diagnostic testing and related data aggregation reporting services under both short-term and long-term project-based collaboration and service agreements with third parties. The terms of these contracts generally include non-refundable upfront 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.

The cost of services reflect the aggregate costs incurred in performing services. These costs include expenses for reagents and laboratory supplies, personnel-related expenses (comprising salaries and benefits) and stock-based

We expect the cost of services to generally increase in line 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 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 personnel-related expenses (comprising salaries and benefits), stock-based compensation 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. Research and development costs are generally expensed as incurred and certain non-refundable advanced payments provided to our research partners are expensed as the related activities are performed.

We generally expect our research and development expenses to continue to increase 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.

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 primarily consist of personnel-related expenses (comprising salaries and benefits) and stock-based compensation for employees in executive leadership, legal, finance and accounting, human resources, information technology, strategy 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; maintaining compliance with requirements of Nasdaq and of the SEC; director and officer insurance premiums and investor relations. 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.

Related party expenses consist of amounts due to ISMMS for expenses under our Transition Services Agreement, or TSA, with ISMMS which expired at the end of the first quarter of 2021, and other service agreements. Additional information can be found in the audited financial statements in Note 7, “Related Party Transactions” included within our Annual Report on Form 10-K for the year ended December 31, 2021, and our unaudited condensed consolidated financial statements in Note 7, “Related Party Transactions” included within this Quarterly Report.

We generally expect related party expenses to decrease as we establish our own internal and external resources to fulfill the administrative and other services we have historically procured from ISMMS.

Interest income consists of interest earned on money market funds.

Other income consists of funding received under the CARES Act. We recognized $5.6 million of additional funding received under the CARES Act during the first quarter of 2021 and the amount is included in other income for the three months ended March 31, 2021.

The following table sets forth our results of operations for the periods presented (in thousands):

			Three months ended March 31,
			2022						2021 (1)
			(in thousands)
Revenue
Diagnostic test revenue			$	52,495					$	62,760
Other revenue			1,446						1,441
Total revenue			53,941						64,201
Cost of services			48,316						68,524
Gross profit (loss)			5,625						(4,323)
Research and development			21,315						53,133
Selling and marketing			29,547						35,366
General and administrative			42,784						102,038
Related party expenses			1,284						1,797
Loss from operations			(89,305)						(196,657)
Other income (expense), net:
Change in fair market value of warrant and earn-out contingent liabilities			13,190						—
Interest income			27						21
Interest expense			(808)						(723)
Other income			—						5,584
Total other income (expense), net			12,409						4,882
Loss before income taxes			(76,896)						(191,775)
Income tax provision			—						—
Net loss and comprehensive loss			$	(76,896)					$	(191,775)

(1) As previously disclosed in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, certain adjustments were made to reclassify certain expenses between cost of services and operating expenses. The adjustments are reflected as disclosed.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
Diagnostic test revenue			$	52,495					$	62,760					$	(10,265)					(16)		%
Other revenue			1,446						1,441						5						—		%
Total revenue			$	53,941					$	64,201					$	(10,260)					(16)		%

Total revenue decreased by $10.3 million, or 16%, to $53.9 million for the three months ended March 31, 2022, from $64.2 million for the three months ended March 31, 2021.

Diagnostic test revenue decreased by $10.3 million, or 16%, to $52.5 million for the three months ended March 31, 2022, from $62.8 million for the three months ended March 31, 2021. The decrease was primarily attributable to a decrease in COVID-19 test volumes of 61%. Lower demand and the absence of new contracts during the three months ended March 31, 2022, a result of the decision to discontinue COVID-19 testing services at the end of the first quarter of 2022, were the key contributors for the decline in COVID-19 revenue. This was partially offset by oncology testing volumes, which increased by 159%. Women’s health testing volume, including carrier screening and NIPT testing, increased by 23%, which was partially offset by a lower average selling price.

Other revenue increased by a nominal amount for the three months ended March 31, 2022, from the three months ended March 31, 2021.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
Cost of services			$	48,316					$	68,524					$	(20,208)					(29)		%

Cost of services decreased by $20.2 million, or 29%, to $48.3 million for the three months ended March 31, 2022, from $68.5 million for the three months ended March 31, 2021. The decrease was primarily driven by the following components: a $17.1 million decrease in stock-based compensation expense due to the higher expense recorded in the first quarter of 2021 as a result of the increased fair value of the awards and related expenses recorded in the first quarter of 2021 under liability accounting; a $1.8 million decrease in the inventory obsolescence write-off as a result of discontinuing COVID-19 testing; and a $1.3 million decrease in overall personnel-related expenses driven by reallocation of certain costs between departments during the fourth quarter of 2021 as a result of a change in estimate.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
Research and development			$	21,315					$	53,133					$	(31,818)					(60)		%

Research and development expense decreased by $31.8 million, or 60%, to $21.3 million for the three months ended March 31, 2022, from $53.1 million for the three months ended March 31, 2021. The decrease was primarily attributable to a $33.8 million decrease in stock-based compensation expense due to the higher expense recorded in the first quarter of 2021 as a result of the increased fair value of the awards and related expenses recorded in the first quarter of 2021 under liability accounting and a decrease in cost incurred for reagents and laboratory supplies and laboratory software of $1.6 million for research and development activities. These decreases were offset by a $2.6 million increase in other personnel-related expenses driven by headcount and a $0.6 million increase in depreciation expense.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
Selling and marketing			$	29,547					$	35,366					$	(5,819)					(16)		%

Selling and marketing expense decreased by $5.8 million, or 16%, to $29.5 million for the three months ended March 31, 2022, from $35.4 million for the three months ended March 31, 2021. The decrease was primarily attributable to a $15.8 million decrease in stock-based compensation expense due to the higher expense recorded in the first quarter of 2021 as a result of the increased fair value of the awards and related expenses recorded in the first quarter of 2021 under liability accounting. This decrease was partially offset by a $5.9 million increase in other personnel-related expenses driven by an increase in headcount, a $1.3 million increase in consulting service expenses to support revenue cycle transformation initiatives and a $1.2 million increase in travel and business expenses due to the lifting of COVID-19 travel restrictions. Additionally, there was an increase of $0.6 million in other lab services for genetic counseling related to medical education, and an increase of $0.5 million in information technology-related expenses.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
General and administrative			$	42,784					$	102,038					$	(59,254)					(58)		%

General and administrative expense decreased by $59.2 million, or 58%, to $42.8 million for the three months ended March 31, 2022, from $102.0 million for the three months ended March 31, 2021. The decrease was primarily attributable to a $80.6 million decrease in stock-based compensation expense due to the higher expense recorded in the first quarter of 2021 as a result of the increased fair value of the awards and related expenses recorded in the first quarter of 2021 under liability accounting. This was partially offset by an increase in expenses of $6.5 million for professional services incurred in connection with the Acquisition that are not capitalized, an increase in personnel-related costs of $10.0 million driven by an increase in headcount, a $2.4 million increase in information technology related expenses due to increased cloud storage requirements, a $1.7 million increase in insurance expenses driven by the commencement of director’s insurance policy, and a $0.5 million increase due to reallocation of certain costs between departments during the fourth quarter of 2021 as a result of a change in estimate.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
Related party expenses			$	1,284					$	1,797					$	(513)					(29)		%

Related party expenses decreased by $0.5 million, or 29%, to $1.3 million for the three months ended March 31, 2022, from $1.8 million for the three months ended March 31, 2021. The decrease was primarily attributable to the discontinued fees related to information technology support pursuant to the TSA with ISMMS as a result of the termination of the agreement after the first quarter of 2021 and a decrease in rent and facility expenses driven by a reduction of office and lab space leased from ISMMS pursuant to the TSA.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
Interest income			$	27					$	21					$	6					29		%

Interest income increased by a nominal amount for the three months ended March 31, 2022 from the three months ended March 31, 2021.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
Interest expense			$	(808)					$	(723)					$	(85)					12		%

Interest expense increased by $0.1 million, or 12%, to $0.8 million for the three months ended March 31, 2022, from $0.7 million for the three months ended March 31, 2021. The increase was driven by the unused line fee and amortization of deferred transaction costs related to the loan and security agreement entered into with Silicon Valley Bank at the end of 2021.

															Change
			Three months ended March 31,												2021 to 2022
			2022						2021						$						%
			(dollars in thousands)
Other income			$	—					$	5,584					$	(5,584)					(100)		%

Other income decreased by $5.6 million, to zero for the three months ended March 31, 2022, from $5.6 million for the three months ended March 31, 2021. This was attributable to the $5.6 million in funding that was received and recognized as other income under the CARES Act in the first quarter of 2021.

In addition to our results determined in accordance with 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;

•provision for income taxes, which may be a necessary element of our costs and ability to operate;

•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 is a non-GAAP financial measure that we define as revenue less cost of services, excluding 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 three months ended March 31, 2022 and 2021:

			Three months ended March 31,
			2022						2021
			(in thousands)
Revenue			$53,941						$64,201
Cost of services			48,316						68,524
Gross Profit (Loss)			5,625						(4,323)
Gross Margin			10%						(7)%
Add:
Stock-based compensation expense			1,381						18,475
Restructuring costs (1)			106						—
Adjusted Gross Profit			$7,112						$14,152
Adjusted Gross Margin			13%						22%

__________________

Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for interest expense, net, depreciation and amortization, stock-based compensation expenses, transaction and acquisition costs, restructuring costs, change in fair market value of warrant and earn-out contingent liabilities and other income. We believe Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric

The following is a reconciliation of our net loss to Adjusted EBITDA for the three months ended March 31, 2022 and 2021:

			Three months ended March 31,
			2022						2021
			(in thousands)
Net loss			$	(76,896)					$	(191,775)
Interest expense, net (1)			781						702
Depreciation and amortization			5,803						4,902
Stock-based compensation expense			17,559						164,962
Transaction and acquisition costs (2)			4,337						1,954
Restructuring costs (3)			2,729						—
Change in fair market value of warrant and earn-out contingent liabilities (4)			(13,190)						—
Other income (5)			—						(5,584)
Adjusted EBITDA			$	(58,877)					$	(24,839)

__________________

On July 22, 2021, we completed the business combination with CMLS, consummated the related private placement financing, and received net cash proceeds of $510 million. Management determined that the cash proceeds received from the business combination provides us with sufficient liquidity to meet our obligations for at least twelve months from the date of this Quarterly Report.

On November 15, 2021, we entered into a loan and security agreement, or the SVB Agreement, with Silicon Valley Bank, or SVB, whereby SVB agreed to provide a $125 million revolving credit facility with a maturity date of November 15, 2024. No amounts were drawn as of December 31, 2021. Advances under 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 an applicable margin.

The following is a description of commitments for known and reasonably likely cash requirements as of March 31, 2022 and December 31, 2021. We anticipate fulfilling such commitments with our existing cash and cash equivalents, which amounted to $315.0 million and $400.6 million as of March 31, 2022 and December 31, 2021, respectively, or through additional capital raised to finance our operations; see "Liquidity and Capital Resources".

Our future minimum payments under non-cancellable operating lease agreements were $74.3 million as of March 31, 2022 and $68.3 million as of December 31, 2021. The timing of these future payments, by year, can be found in our audited financial statements in Note 9, “Commitments and Contingencies” included within our Annual Report on Form 10-K for the year ended December 31, 2021, and our unaudited condensed consolidated financial statements in Note 9, “Leases,” included within this Quarterly Report, respectively.

Our future payments under finance leases were $64.5 million as of March 31, 2022. The timing of these future payments, by year, can be found in our audited financial statements in Note 9, “Commitments and Contingencies” included within our Annual Report on Form 10-K for the year ended December 31, 2021, and our unaudited condensed consolidated financial statements in Note 9, “Leases,” included within this Quarterly Report, respectively.

			Three months ended March 31,
			2022						2021
			(in thousands)
Net cash used in operating activities			$	(81,494)					$	(42,208)
Net cash used in investing activities			(3,913)						(4,994)
Net cash used in financing activities			(160)						(2,278)

Net cash used in operating activities during the three months ended March 31, 2022 was $81.5 million, which was primarily attributable to a net loss of $76.9 million and a change in fair value of the warrant and earn-out liabilities of $13.2 million, partially offset by non-cash depreciation and amortization of $5.8 million and non-cash stock-based compensation expense of $17.6 million. The net change in our operating assets and liabilities primarily reflected a $11.1 million increase in accounts receivable primarily from institutional payors, a $2.9 million increase in inventories driven by an increase in reagents, a $1.6 million increase in prepaid expenses and other current assets mainly driven by new insurance policy premiums purchased during the current period, a $3.9 million increase in accounts payable and accrued expenses due to the timing of vendor payments, and a $6.6 million decrease in other current liabilities mainly driven by the decrease in employee payroll and compensation related accruals.

Net cash used in operating activities during the three months ended March 31, 2021 was $42.2 million, which was primarily attributable to a net loss of $191.8 million and a net change in our operating assets and liabilities of $22.3 million, partially offset by non-cash depreciation and amortization of $4.9 million and non-cash stock-based compensation expense of $165.0 million. The net change in our operating assets and liabilities primarily reflected an $9.8 million increase in inventories driven by a higher volume of purchases to support increasing testing volumes, a $6.3 million increase in prepaid expenses and other current assets mainly driven by professional services costs directly related to our business combination with CMLS, a $4.0 million increase in accounts payable and accrued expenses due to the timing of vendor payments, and a $9.1 million decrease in other current liabilities mainly driven by a decline in our bonus accrual following bonus payments in March 2021.

Net cash used in investing activities during the three months ended March 31, 2022 was $3.9 million, which was attributable to $1.4 million in purchases of property and equipment and $2.5 million of costs related to development of internal-use software assets.

Net cash used in investing activities during the three months ended March 31, 2021 was $5.0 million, which was attributable to $2.1 million in purchases of property and equipment and $2.9 million of costs related to development of internal-use software assets.

Net cash used in financing activities during the three months ended March 31, 2022 was $0.2 million, which was attributable to $0.9 million of finance lease principal payments which was offset by proceeds of $0.7 million from the exercise of stock options.

Net cash used in financing activities during the three months ended March 31, 2021 was $2.3 million, which was attributable to $1.3 million in payments for deferred transaction costs related to our business combination with CMLS, $1.0 million in principal payments on our finance lease obligations and $0.4 million in principal payments on our long-term debt obligations existed during the period, offset by $0.4 million cash received from stock option exercise.

Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make 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 unaudited condensed 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.

Except as described in Note 2, “Summary of Significant Accounting Policies–Recent Accounting Pronouncement Issued but Not Yet Adopted,” to our unaudited condensed consolidated financial statements included in this Quarterly Report, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our audited consolidated financial statements and notes thereto included within our Annual Report on Form 10-K for the year ended December 31, 2021.

We are considered an “emerging growth company” within the meaning of the JOBS Act. The JOBS Act allows an emerging growth company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. We have elected to use this extended transition period and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates. We also intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

Following the completion of the Business Combination, we will remain an emerging growth company until the earliest of (1) September 1, 2025, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Class A common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Additional information on recent accounting pronouncements can be found in the audited financial statements in Note 2, “Summary of Significant Accounting Policies” included within our Annual Report on Form 10-K for the year ended December 31, 2021, and our unaudited condensed consolidated financial statements in Note 2, “Summary of Significant Accounting Policies” included within this Quarterly Report.

We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. Our cash, cash equivalents, and restricted cash consists of bank deposits and money market funds, which totaled $315.9 million at March 31, 2022 and $401.5 million as of December 31, 2021. Such interest-bearing instruments carry a degree of risk; however, because our investments are primarily high-quality credit instruments with short-term durations with high-quality institutions, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A 100 basis point change in interest rates would not have a material effect on the fair market value of our cash, cash equivalents and restricted cash.

Our loan and financing obligation are recorded at amortized cost and include variable interest rate term. Therefore, change in interest rates can impact our interest payments we are obligated to pay. Additional information on our long-term debt can be found in Sema4’s audited financial statements in Note 8, “Long-Term Debt” and Sema4’s unaudited condensed consolidated financial statements in Note 8, “Long-Term Debt.”

•Hiring more technical accounting resources to enhance our control environment;

•Engaging external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP, and to assist us with documenting and assessing our accounting policies and procedures until we have sufficient technical accounting resources;

•Implementing business process-level controls across all significant accounts and information technology general controls across all relevant systems. This includes providing training for control owners that will present expectations as it relates to the control design, execution and monitoring of such controls, including enhancements to the documentation to evidence the execution of the controls; and

•Implementing improvements to our ERP system to enhance the accuracy of our financial records, enable the enforcement of systematic segregation of duties, and to improve our information technology general controls environment.

You should carefully review and consider the following risk factors and the other information contained in this Quarterly Report on Form 10-Q before deciding whether to invest in our Class A common stock. We cannot assure you that any of the events discussed below will not occur. These events could have a material and adverse impact on our business, financial condition, results of operations and prospects. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, financial condition, results of operations, net revenue and future prospects. In such event, the trading price of our Class A common stock could decline, and you could lose all or part of your investment. We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business or financial condition. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included herein.

•The ongoing COVID-19 pandemic has affected and may further materially and adversely affect our business and financial results.

•We face intense competition. If we do not continue to innovate and provide products and services that are useful to users, we may not remain competitive, which could harm our business and operating results.

•If third-party payors, including managed care organizations, private health insurers and government health plans, do not provide adequate reimbursement for our tests, or seek to amend or renegotiate their fee reimbursement schedules, or if we are unable to comply with their requirements for reimbursement, our commercial success could be negatively affected.

•We have limited experience with the development and commercialization of our databases and our health information and genomic platforms.

•If we fail to comply with federal and state laboratory licensing requirements or standards, we could lose the ability to perform our tests or experience disruptions to our business.

•We rely on highly skilled personnel in a broad array of disciplines and, if we are unable to hire, retain or motivate these individuals, or maintain our corporate culture, we may not be able to maintain the quality of our services or grow effectively.

•We need to scale our infrastructure in advance of demand for our products and services, and our failure to generate sufficient demand for our products and services would have a negative impact on our business and our ability to attain profitability.

•We rely on a limited number of suppliers or, in some cases, single suppliers, for some of our laboratory instruments and materials and may not be able to find replacements or immediately transition to alternative suppliers or service providers.