UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31,September 30, 2023

or

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

For the transition period from to

Commission File Number: 001-37894

 

FULGENT GENETICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

81-2621304

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

4399 Santa Anita Avenue

El Monte, CA

91731

(Address of principal executive offices)

(Zip Code)

 

(626) 350-0537

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

FLGT

 

The Nasdaq Stock Market
(Nasdaq Global 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of MayNovember 1, 2023, there were 29,701,24629,633,057 outstanding shares of the registrant’s common stock.

 

 


Table of Contents

 

 

Page

PART I—FINANCIAL INFORMATION

1

Item 1. Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

Condensed Consolidated Statements of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

6

Notes to the Condensed Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk

2526

Item 4. Controls and Procedures

2526

PART II—OTHER INFORMATION

2628

Item 1. Legal Proceedings

2628

Item 1A. Risk Factors

2628

Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities

2628

Item 5. Other Information

2628

Item 6. Exhibits

2629

Exhibit Index

2730

Signatures

2831

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FULGENT GENETICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except par value data)

(unaudited)

 

March 31,

 

 

December 31,

 

September 30,

 

 

December 31,

 

2023

 

 

2022

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

66,172

 

 

$

79,506

 

$

84,076

 

 

$

79,506

 

Marketable securities

 

438,313

 

 

 

446,729

 

 

383,726

 

 

 

446,729

 

Trade accounts receivable, net of allowance for credit losses of $38,302 and $41,205

 

43,549

 

 

 

52,749

 

Trade accounts receivable, net of allowance for credit losses of $29,091 and $41,205

 

49,277

 

 

 

52,749

 

Other current assets

 

32,689

 

 

 

48,889

 

 

32,776

 

 

 

48,889

 

Total current assets

 

580,723

 

 

 

627,873

 

 

549,855

 

 

 

627,873

 

Marketable securities, long-term

 

366,833

 

 

 

326,648

 

 

383,659

 

 

 

326,648

 

Redeemable preferred stock investment

 

12,982

 

 

 

12,385

 

 

15,158

 

 

 

12,385

 

Fixed assets, net

 

79,083

 

 

 

81,353

 

 

85,265

 

 

 

81,353

 

Intangible assets, net

 

148,699

 

 

 

150,643

 

 

144,489

 

 

 

150,643

 

Goodwill

 

143,120

 

 

 

143,027

 

 

141,844

 

 

 

143,027

 

Other long-term assets

 

45,327

 

 

 

44,124

 

 

38,128

 

 

 

44,124

 

Total assets

$

1,376,767

 

 

$

1,386,053

 

$

1,358,398

 

 

$

1,386,053

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

$

22,080

 

 

$

23,093

 

$

15,772

 

 

$

23,093

 

Accrued liabilities

 

21,088

 

 

 

24,981

 

 

21,031

 

 

 

24,981

 

Contract liabilities

 

2,733

 

 

 

3,199

 

 

2,586

 

 

 

3,199

 

Customer deposit

 

11,621

 

 

 

10,895

 

 

18,861

 

 

 

10,895

 

Investment margin loan

 

14,999

 

 

 

14,999

 

 

 

 

 

14,999

 

Notes payable, current portion

 

5,608

 

 

 

5,639

 

 

2,890

 

 

 

5,639

 

Other current liabilities

 

3,810

 

 

 

5,301

 

 

281

 

 

 

5,301

 

Total current liabilities

 

81,939

 

 

 

88,107

 

 

61,421

 

 

 

88,107

 

Unrecognized tax benefits

 

9,836

 

 

 

9,836

 

 

9,555

 

 

 

9,836

 

Deferred tax liability

 

9,833

 

 

 

 

Other long-term liabilities

 

16,073

 

 

 

18,235

 

 

15,755

 

 

 

18,235

 

Total liabilities

 

107,848

 

 

 

116,178

 

 

96,564

 

 

 

116,178

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value per share, 50,000 shares authorized, 31,502 and 31,248 shares issued, respectively, and 29,692 and 29,438 shares outstanding, respectively

 

3

 

 

 

3

 

Common stock, $0.0001 par value per share, 50,000 shares authorized, 31,925 and 31,248 shares issued, respectively, and 30,035 and 29,438 shares outstanding, respectively

 

3

 

 

 

3

 

Preferred stock, $0.0001 par value per share, 1,000 shares authorized, no shares issued or outstanding

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

495,981

 

 

 

486,585

 

 

514,262

 

 

 

486,585

 

Accumulated other comprehensive loss

 

(17,196

)

 

 

(20,903

)

 

(16,891

)

 

 

(20,903

)

Retained earnings

 

785,660

 

 

 

801,000

 

 

761,324

 

 

 

801,000

 

Total Fulgent stockholders’ equity

 

1,264,448

 

 

 

1,266,685

 

 

1,258,698

 

 

 

1,266,685

 

Noncontrolling interest

 

4,471

 

 

 

3,190

 

 

3,136

 

 

 

3,190

 

Total stockholders’ equity

 

1,268,919

 

 

 

1,269,875

 

 

1,261,834

 

 

 

1,269,875

 

Total liabilities and stockholders’ equity

$

1,376,767

 

 

$

1,386,053

 

$

1,358,398

 

 

$

1,386,053

 

 

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

1


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

Three Months Ended March 31,

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

$

66,168

 

 

$

320,268

 

$

84,687

 

 

$

105,655

 

 

$

218,708

 

 

$

551,264

 

Cost of revenue

 

47,357

 

 

 

77,725

 

 

44,843

 

 

 

59,560

 

 

 

139,481

 

 

 

197,350

 

Gross profit

 

18,811

 

 

 

242,543

 

 

39,844

 

 

 

46,095

 

 

 

79,227

 

 

 

353,914

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

9,782

 

 

 

5,989

 

 

10,014

 

 

 

7,507

 

 

 

29,488

 

 

 

20,401

 

Selling and marketing

 

10,083

 

 

 

7,940

 

 

10,161

 

 

 

9,859

 

 

 

30,967

 

 

 

28,665

 

General and administrative

 

21,802

 

 

 

25,775

 

 

17,498

 

 

 

26,266

 

 

 

57,293

 

 

 

82,281

 

Amortization of intangible assets

 

1,968

 

 

 

906

 

 

1,957

 

 

 

2,006

 

 

 

5,887

 

 

 

4,487

 

Restructuring costs

 

 

 

 

105

 

 

 

 

 

 

3,001

 

Total operating expenses

 

43,635

 

 

 

40,610

 

 

39,630

 

 

 

45,743

 

 

 

123,635

 

 

 

138,835

 

Operating (loss) income

 

(24,824

)

 

 

201,933

 

Operating income (loss)

 

214

 

 

 

352

 

 

 

(44,408

)

 

 

215,079

 

Interest and other income, net

 

3,775

 

 

 

45

 

 

6,646

 

 

 

1,405

 

 

 

15,519

 

 

 

2,408

 

(Loss) income before income taxes

 

(21,049

)

 

 

201,978

 

(Benefit from) provision for income taxes

 

(5,200

)

 

 

48,421

 

Income (loss) before income taxes

 

6,860

 

 

 

1,757

 

 

 

(28,889

)

 

 

217,487

 

Provision for income taxes

 

20,326

 

 

 

414

 

 

 

12,016

 

 

 

51,488

 

Net (loss) income from consolidated operations

 

(15,849

)

 

 

153,557

 

 

(13,466

)

 

 

1,343

 

 

 

(40,905

)

 

 

165,999

 

Net loss attributable to noncontrolling interests

 

509

 

 

 

422

 

 

359

 

 

 

376

 

 

 

1,229

 

 

 

1,236

 

Net (loss) income attributable to Fulgent

$

(15,340

)

 

$

153,979

 

$

(13,107

)

 

$

1,719

 

 

$

(39,676

)

 

$

167,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share attributable to Fulgent:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.52

)

 

$

5.09

 

$

(0.44

)

 

$

0.06

 

 

$

(1.33

)

 

$

5.53

 

Diluted

$

(0.52

)

 

$

4.93

 

$

(0.44

)

 

$

0.06

 

 

$

(1.33

)

 

$

5.38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

29,536

 

 

 

30,234

 

 

30,013

 

 

 

30,174

 

 

 

29,789

 

 

 

30,256

 

Diluted

 

29,536

 

 

 

31,240

 

 

30,013

 

 

 

30,867

 

 

 

29,789

 

 

 

31,107

 

 

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

 

2


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

Three Months Ended March 31,

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net (loss) income from consolidated operations

$

(15,849

)

 

$

153,557

 

$

(13,466

)

 

$

1,343

 

 

$

(40,905

)

 

$

165,999

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

168

 

 

 

123

 

Foreign currency translation loss

 

(230

)

 

 

(1,925

)

 

 

(2,027

)

 

 

(3,680

)

Net gain (loss) on available-for-sale debt securities, net of tax

 

5,329

 

 

 

(11,738

)

 

4,017

 

 

 

(2,502

)

 

 

7,214

 

 

 

(22,708

)

Comprehensive (loss) income from consolidated operations

 

(10,352

)

 

 

141,942

 

 

(9,679

)

 

 

(3,084

)

 

 

(35,718

)

 

 

139,611

 

Net loss attributable to noncontrolling interest

 

509

 

 

 

422

 

 

359

 

 

 

376

 

 

 

1,229

 

 

 

1,236

 

Foreign currency translation gain attributable to noncontrolling interest

 

(1,790

)

 

 

(119

)

Comprehensive (income) loss attributable to noncontrolling interest

 

(1,281

)

 

 

303

 

Foreign currency translation loss (gain) attributable to noncontrolling interest

 

68

 

 

 

1,242

 

 

 

(1,175

)

 

 

1,545

 

Comprehensive loss attributable to noncontrolling interest

 

427

 

 

 

1,618

 

 

 

54

 

 

 

2,781

 

Comprehensive (loss) income attributable to Fulgent

$

(11,633

)

 

$

142,245

 

$

(9,252

)

 

$

(1,466

)

 

$

(35,664

)

 

$

142,392

 

 

 

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

3


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

Fulgent Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulgent Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares (1)

 

 

Amount

 

 

Additional
 Paid-In Capital

 

 

Accumulated
Other Comprehensive
Income (Loss)

 

 

Retained Earnings

 

 

Fulgent Stockholders’ Equity

 

 

Noncontrolling Interest

 

 

Total
Equity

 

 

Shares (1)

 

 

Amount

 

 

Additional
 Paid-In Capital

 

 

Accumulated
Other Comprehensive
Loss

 

 

Retained Earnings

 

 

Fulgent Stockholders’ Equity

 

 

Noncontrolling Interest

 

 

Total
Equity

 

Balance at December 31, 2022

 

 

29,438

 

 

$

3

 

 

$

486,585

 

 

$

(20,903

)

 

$

801,000

 

 

$

1,266,685

 

 

$

3,190

 

 

$

1,269,875

 

 

 

29,438

 

 

$

3

 

 

$

486,585

 

 

$

(20,903

)

 

$

801,000

 

 

$

1,266,685

 

 

$

3,190

 

 

$

1,269,875

 

Equity-based compensation

 

 

 

 

 

 

 

 

10,265

 

 

 

 

 

 

 

 

 

10,265

 

 

 

 

 

 

10,265

 

 

 

 

 

 

 

 

 

10,265

 

 

 

 

 

 

 

 

 

10,265

 

 

 

 

 

 

10,265

 

Restricted stock awards

 

 

280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withholding for employee tax obligations

 

 

(26

)

 

 

 

 

 

(869

)

 

 

 

 

 

 

 

 

(869

)

 

 

 

 

 

(869

)

 

 

(26

)

 

 

 

 

 

(869

)

 

 

 

 

 

 

 

 

(869

)

 

 

 

 

 

(869

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

3,707

 

 

 

 

 

 

3,707

 

 

 

1,790

 

 

 

5,497

 

 

 

 

 

 

 

 

 

 

 

 

3,707

 

 

 

 

 

 

3,707

 

 

 

1,790

 

 

 

5,497

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,340

)

 

 

(15,340

)

 

 

(509

)

 

 

(15,849

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,340

)

 

 

(15,340

)

 

 

(509

)

 

 

(15,849

)

Balance at March 31, 2023

 

 

29,692

 

 

$

3

 

 

$

495,981

 

 

$

(17,196

)

 

$

785,660

 

 

$

1,264,448

 

 

$

4,471

 

 

$

1,268,919

 

 

 

29,692

 

 

 

3

 

 

 

495,981

 

 

 

(17,196

)

 

 

785,660

 

 

 

1,264,448

 

 

 

4,471

 

 

 

1,268,919

 

Equity-based compensation

 

 

 

 

 

 

 

 

10,323

 

 

 

 

 

 

 

 

 

10,323

 

 

 

 

 

 

10,323

 

Exercise of common stock options

 

 

8

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Restricted stock awards

 

 

225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withholding for employee tax obligations

 

 

(8

)

 

 

 

 

 

(232

)

 

 

 

 

 

 

 

 

(232

)

 

 

 

 

 

(232

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(3,550

)

 

 

 

 

 

(3,550

)

 

 

(547

)

 

 

(4,097

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,229

)

 

 

(11,229

)

 

 

(361

)

 

 

(11,590

)

Balance at June 30, 2023

 

 

29,917

 

 

$

3

 

 

$

506,075

 

 

$

(20,746

)

 

$

774,431

 

 

$

1,259,763

 

 

$

3,563

 

 

$

1,263,326

 

Equity-based compensation

 

 

 

 

 

 

 

 

10,902

 

 

 

 

 

 

 

 

 

10,902

 

 

 

 

 

 

10,902

 

Restricted stock awards

 

 

211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withholding for employee tax obligations

 

 

(13

)

 

 

 

 

 

(517

)

 

 

 

 

 

 

 

 

(517

)

 

 

 

 

 

(517

)

Repurchase of common stock

 

 

(80

)

 

 

 

 

 

(2,198

)

 

 

 

 

 

 

 

 

(2,198

)

 

 

 

 

 

(2,198

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

3,855

 

 

 

 

 

 

3,855

 

 

 

(68

)

 

 

3,787

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,107

)

 

 

(13,107

)

 

 

(359

)

 

 

(13,466

)

Balance at September 30, 2023

 

 

30,035

 

 

$

3

 

 

$

514,262

 

 

$

(16,891

)

 

$

761,324

 

 

$

1,258,698

 

 

$

3,136

 

 

$

1,261,834

 

(1) As of March 31,September 30, 2023, 371,006 shares of the Company's common stock were not issued and were held back by the Company as partial security for the indemnification obligations in connection with the business combination of Fulgent Pharma Holdings, Inc., or Fulgent Pharma, in 2022.

 

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

 

4


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

Fulgent Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulgent Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
 Paid-In Capital

 

 

Accumulated
Other Comprehensive
Income (Loss)

 

 

Retained Earnings

 

 

Fulgent Stockholders’ Equity

 

 

Noncontrolling Interest

 

 

Total
Equity

 

 

Shares

 

 

Amount

 

 

Additional
 Paid-In Capital

 

 

Accumulated
Other Comprehensive
Loss

 

 

Retained Earnings

 

 

Fulgent Stockholders’ Equity

 

 

Noncontrolling Interest

 

 

Total
Equity

 

Balance at December 31, 2021

 

 

30,160

 

 

$

3

 

 

$

501,908

 

 

$

(759

)

 

$

657,597

 

 

$

1,158,749

 

 

$

7,131

 

 

$

1,165,880

 

 

 

30,160

 

 

$

3

 

 

$

501,908

 

 

$

(759

)

 

$

657,597

 

 

$

1,158,749

 

 

$

7,131

 

 

$

1,165,880

 

Equity-based compensation

 

 

 

 

 

 

 

 

5,616

 

 

 

 

 

 

 

 

 

5,616

 

 

 

 

 

 

5,616

 

 

 

 

 

 

 

 

 

5,616

 

 

 

 

 

 

 

 

 

5,616

 

 

 

 

 

 

5,616

 

Exercise of common stock options

 

 

3

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

16

 

 

 

3

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

16

 

Restricted stock awards

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withholding for employee tax obligations

 

 

(8

)

 

 

 

 

 

(494

)

 

 

 

 

 

 

 

 

(494

)

 

 

 

 

 

(494

)

 

 

(8

)

 

 

 

 

 

(494

)

 

 

 

 

 

 

 

 

(494

)

 

 

 

 

 

(494

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(11,734

)

 

 

 

 

 

(11,734

)

 

 

119

 

 

 

(11,615

)

 

 

 

 

 

 

 

 

 

 

 

(11,734

)

 

 

 

 

 

(11,734

)

 

 

119

 

 

 

(11,615

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153,979

 

 

 

153,979

 

 

 

(422

)

 

 

153,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153,979

 

 

 

153,979

 

 

 

(422

)

 

 

153,557

 

Balance at March 31, 2022

 

 

30,327

 

 

$

3

 

 

$

507,046

 

 

$

(12,493

)

 

$

811,576

 

 

$

1,306,132

 

 

$

6,828

 

 

$

1,312,960

 

 

 

30,327

 

 

 

3

 

 

 

507,046

 

 

 

(12,493

)

 

 

811,576

 

 

 

1,306,132

 

 

 

6,828

 

 

 

1,312,960

 

Equity-based compensation

 

 

 

 

 

 

 

 

8,030

 

 

 

 

 

 

 

 

 

8,030

 

 

 

 

 

 

8,030

 

Exercise of common stock options

 

 

1

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Restricted stock awards

 

 

161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withholding for employee tax obligations

 

 

(8

)

 

 

 

 

 

(436

)

 

 

 

 

 

 

 

 

(436

)

 

 

 

 

 

(436

)

Repurchase of common stock

 

 

(215

)

 

 

 

 

 

(10,577

)

 

 

 

 

 

 

 

 

(10,577

)

 

 

 

 

 

(10,577

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(9,924

)

 

 

 

 

 

(9,924

)

 

 

(422

)

 

 

(10,346

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,537

 

 

 

11,537

 

 

 

(438

)

 

 

11,099

 

Balance at June 30, 2022

 

 

30,266

 

 

$

3

 

 

$

504,066

 

 

$

(22,417

)

 

$

823,113

 

 

$

1,304,765

 

 

$

5,968

 

 

$

1,310,733

 

Equity-based compensation

 

 

 

 

 

 

 

 

8,972

 

 

 

 

 

 

 

 

 

8,972

 

 

 

 

 

 

8,972

 

Restricted stock awards

 

 

203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withholding for employee tax obligations

 

 

(8

)

 

 

 

 

 

(522

)

 

 

 

 

 

 

 

 

(522

)

 

 

 

 

 

(522

)

Repurchase of common stock

 

 

(780

)

 

 

 

 

 

(34,702

)

 

 

 

 

 

 

 

 

(34,702

)

 

 

 

 

 

(34,702

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(3,185

)

 

 

 

 

 

(3,185

)

 

 

(1,242

)

 

 

(4,427

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,719

 

 

 

1,719

 

 

 

(376

)

 

 

1,343

 

Balance at September 30, 2022

 

 

29,681

 

 

$

3

 

 

$

477,814

 

 

$

(25,602

)

 

$

824,832

 

 

$

1,277,047

 

 

$

4,350

 

 

$

1,281,397

 

 

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

5


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income from consolidated operations

 

$

(15,849

)

 

$

153,557

 

 

$

(40,905

)

 

$

165,999

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

Equity-based compensation

 

 

10,265

 

 

 

5,616

 

 

 

31,490

 

 

 

22,618

 

Depreciation and amortization

 

 

6,879

 

 

 

4,695

 

 

 

19,610

 

 

 

22,860

 

Provision for credit losses

 

 

(113

)

 

 

11,574

 

 

 

(4,331

)

 

 

25,256

 

Noncash lease expense

 

 

1,561

 

 

 

477

 

 

 

4,895

 

 

 

3,311

 

(Gain) loss on disposal of fixed asset

 

 

(179

)

 

 

250

 

Loss on disposal of fixed asset

 

 

429

 

 

 

300

 

Amortization of (discount) premium of marketable securities

 

 

(478

)

 

 

1,910

 

 

 

(2,382

)

 

 

4,230

 

Deferred taxes

 

 

(5,200

)

 

 

(5,497

)

 

 

10,964

 

 

 

(4,934

)

Unrecognized tax benefits

 

 

 

 

 

485

 

 

 

(281

)

 

 

1,101

 

Net loss on marketable securities

 

 

 

 

 

513

 

 

 

 

 

 

626

 

Other

 

 

 

 

 

15

 

 

 

(29

)

 

 

(23

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

9,331

 

 

 

(32,924

)

 

 

7,596

 

 

 

24,214

 

Other current and long-term assets

 

 

(1,629

)

 

 

2,962

 

 

 

(2,876

)

 

 

3,722

 

Accounts payable

 

 

(1,855

)

 

 

2,110

 

 

 

(7,025

)

 

 

(32,331

)

Income tax payable

 

 

 

 

 

51,376

 

 

 

 

 

 

(400

)

Accrued liabilities and other liabilities

 

 

(9,114

)

 

 

(8,231

)

 

 

(323

)

 

 

(12,905

)

Operating and finance lease liabilities

 

 

(1,526

)

 

 

(477

)

Net cash (used in) provided by operating activities

 

 

(7,907

)

 

 

188,411

 

Operating lease liabilities

 

 

(4,762

)

 

 

(3,331

)

Net cash provided by operating activities

 

 

12,070

 

 

 

220,313

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(143,926

)

 

 

(130,133

)

 

 

(343,601

)

 

 

(257,267

)

Purchase of preferred stock of privately held company

 

 

 

 

 

(15,000

)

Purchases of fixed assets

 

 

(2,034

)

 

 

(5,360

)

Contingent consideration payout related to a business acquisition

 

 

 

 

 

(10,000

)

Proceeds from sale of fixed assets

 

 

198

 

 

 

14

 

Maturities of marketable securities

 

 

141,408

 

 

 

27,760

 

 

 

376,890

 

 

 

131,713

 

Proceeds from sale of marketable securities

 

 

 

 

 

133,407

 

 

 

 

 

 

133,407

 

Net cash (used in) provided by investing activities

 

 

(4,354

)

 

 

688

 

Purchases of fixed assets

 

 

(19,101

)

 

 

(14,053

)

Proceeds from sale of fixed assets

 

 

440

 

 

 

240

 

Acquisition of businesses, net of cash acquired

 

 

 

 

 

(137,755

)

Investment in private equity securities

 

 

 

 

 

(15,000

)

Contingent consideration payout related to a business acquisition

 

 

 

 

 

(10,000

)

Net cash provided by (used in) investing activities

 

 

14,628

 

 

 

(168,715

)

Cash flow from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock

 

 

(2,198

)

 

 

(45,279

)

Common stock withholding for employee tax obligations

 

 

(869

)

 

 

(494

)

 

 

(1,618

)

 

 

(1,452

)

Repayment of notes payable

 

 

 

 

 

(375

)

 

 

(2,429

)

 

 

(367

)

Repayment of investment margin loan

 

 

(15,000

)

 

 

 

Principal paid for finance lease

 

 

(232

)

 

 

(81

)

 

 

(592

)

 

 

(469

)

Proceeds from exercise of stock options

 

 

 

 

 

16

 

 

 

3

 

 

 

19

 

Net cash used in financing activities

 

 

(1,101

)

 

 

(934

)

 

 

(21,834

)

 

 

(47,548

)

Effect of exchange rate changes on cash and cash equivalents

 

 

28

 

 

 

10

 

 

 

(294

)

 

 

(174

)

Net (decrease) increase in cash and cash equivalents

 

 

(13,334

)

 

 

188,175

 

Net increase in cash and cash equivalents

 

 

4,570

 

 

 

3,876

 

Cash and cash equivalents at beginning of period

 

 

79,506

 

 

 

164,894

 

 

 

79,506

 

 

 

164,894

 

Cash and cash equivalents at end of period

 

$

66,172

 

 

$

353,069

 

 

$

84,076

 

 

$

168,770

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes paid

 

$

1,680

 

 

$

435

 

 

$

2,698

 

 

$

56,181

 

Interest Paid

 

$

940

 

 

$

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of marketable securities in other current liabilities

 

$

3,519

 

 

$

 

Purchase of marketable securities in other current liabilities

 

$

 

 

$

12,905

 

Purchases of fixed assets in accounts payable

 

$

2,537

 

 

$

2,054

 

 

$

1,288

 

 

$

1,690

 

Purchases of fixed assets in notes payable

 

$

 

 

$

3,833

 

 

$

 

 

$

3,833

 

Operating lease right-of-use assets obtained in exchange for lease liabilities

 

$

2,661

 

 

$

52

 

Finance lease right-of-use assets obtained in exchange for lease liabilities

 

$

 

 

$

573

 

Finance lease right-of-use assets reduced due to lease modification and termination

 

$

696

 

 

$

 

Operating lease right-of-use assets reduced due to lease modification and termination

 

$

 

 

$

66

 

 

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

6


FULGENT GENETICS, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

 

Note 1. Overview and Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. These financial statements include the assets, liabilities, revenues and expenses of all subsidiaries and entities in which the Company has a controlling financial interest or is deemed to be the primary beneficiary. In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both (i) the power to direct the economically significant activities of the entity and (ii) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. The Company uses the equity method to account for its investments in entities that it does not control, but in which it has the ability to exercise significant influence over operating and financial policies. All intercompany accounts and transactions are eliminated from the accompanying condensed consolidated financial statements.

Nature of the Business

Fulgent Genetics, Inc., together with its subsidiaries and affiliated professional corporations or PCs (collectively referred to as “thethe Company, unless otherwise noted or the context otherwise requires,)requires), is a technology-based company with a well-established clinical diagnostic business and a therapeutic development business. Its clinical diagnostic business offers molecular diagnostic testing services, comprehensive genetic testing, and high-quality anatomic pathology laboratory services designed to provide physicians and patients with clinically actionable diagnostic information to improve the quality of patient care. Its therapeutic development business is focused on developing drug candidates for treating a broad range of cancers using a novel nanoencapsulation and targeted therapy platform designed to improve the therapeutic window and pharmacokinetic profile of new and existing cancer drugs. The Company aims to transform from a genomic diagnostic business into a fully integrated precision medicine company.

Unaudited Interim Financial Information

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2022, which are included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 28, 2023, or the 2022 Annual Report, and, in the opinion of management, include all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the Company’s financial position and results of operations. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or any other period. The accompanying Condensed Consolidated Balance Sheet as of December 31, 2022 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the 2022 Annual Report, including the notes thereto.

Note 2. Summary of Significant Accounting Policies

See the summary of the Company’s significant accounting policies set forth in the notes to its consolidated financial statements included in the 2022 Annual Report.

Use of Estimates

The preparation of 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 at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. These estimates, judgments and assumptions are based on historical data and experience available at the date of the accompanying condensed consolidated financial statements, as well as various other factors management believes to be reasonable under the circumstances. The Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from these estimates.

On an on-going basis, management evaluates its estimates, primarily those related to: (i) revenue recognition criteria, (ii) accounts receivable and allowances for credit losses, (iii) the useful lives of fixed assets and intangible assets, (iv) estimates of tax liabilities, (v) valuation of intangible assets and goodwill at time of acquisition and on a recurring basis, and (vi) valuation of investments.

7


Trade Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains an allowance for credit losses for expected uncollectible trade accounts receivable, which is recorded as an offset to trade accounts receivable, and changes in allowance for credit losses are classified as a general and administrative expense in the accompanying Condensed Consolidated Statements of Operations. The Company assesses collectability by reviewing trade accounts receivable on a collective basis where similar risk characteristics exist and on an individual basis when it identifies specific customers that have deterioration in credit quality such that they may no longer share similar risk characteristics with the other receivables. In determining the amount of the allowance for credit losses, the Company uses a loss rate model or probability-of-default and loss given default model, whichmodel. Following the loss rate method, expected credit losses are determined based on an estimated historical loss rate. The probability of default method allows the ability to define a point of default and measure credit losses for receivables that have reached the point of default for purposes of calculating the allowance for credit losses. Loss given default represents the likelihood that a receivable that has reached the point of default will not be collected in full. The Company updates its probability-of-defaultloss rate and loss given default factors annually to incorporate the most recent historical data and adjusts the quantitative portion of the reserve through its qualitative reserve overlay. The Company looks at qualitative factors such as general economic conditions in determining expected credit losses. During the first quartersthree and nine months ended September 30, 2023, the Company recorded an adjustment of 2023$(2.3) million and $(4.3) million, respectively, in provision for credit losses for trade accounts receivable due to decreased allowance for uncollectible accounts. During the three and nine months ended September 30, 2022, the Company recorded $($113,0006.5) million and $11.625.3 million, respectively, of provision for credit losses for trade accounts receivable, respectively.receivable.

Redeemable Preferred Stock Investment

The redeemable preferred stock investment of $13.015.2 million as of March 31,September 30, 2023 represents the fair value of redeemable preferred stock of a private company that the Company purchased in July 2021. The investment is classified as available-for-sale debt securities. The fair value of available-for-sale debt security is included in the Condensed Consolidated Statement of Balance Sheets. Unrealized gain of $597,0002.3 is excluded from earningsmillion and reported in other comprehensive loss in the first quarter of 2023, and unrealized loss of $4.42.8 million is excluded from earnings and reported in other comprehensive lossincome (loss) in the first quarterthree and nine months ended September 30, 2023, respectively, and unrealized loss of 2022.$748,000 and $10.7 million were excluded from earnings and reported in other comprehensive income (loss) in the three and nine months ended September 30, 2022, respectively. Since the Company intends on holding the preferred stock, and the preferred stock is not redeemable until July 2027, the investment is recorded as a long-term investment.

Foreign Currency Translation and Foreign Currency Transactions

The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in accumulated other comprehensive income (loss) in the accompanying Condensed Consolidated Statements of Stockholders’ Equity. The Company and its subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, whereas reagents and supplies, property and nonmonetary assets and liabilities are measured at historical rates. Losses from these remeasurements were not significant$230,000 and $2.0 million in the first quarters ofthree and nine months ended September 30, 2023, respectively. Loss from these translations were $1.9 million and 2022.$3.7 million in the three and nine months ended September 30, 2022, respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of net unrealized gain or loss on available-for-sale debt securities, net of tax, and foreign currency translation adjustments from the Company's subsidiaries not using the U.S. dollar as their functional currency. There were no reclassifications from other comprehensive income (loss) to net loss in the first quarter ofthree and nine months ended September 30, 2023, and reclassification from other comprehensive income (loss) to net earnings was not significant in the first quarter ofthree and nine months ended September 30, 2022. The tax effects related to net unrealized loss on available-for-sale debt securities were $1.91.2 million and $4.52.4 million in the first quarters ofthree and nine months ended September 30, 2023, respectively. The tax effects related to net unrealized loss on available-for-sale debt securities were $3.6 million and $9.4 million in the three and nine months ended September 30, 2022, respectively.

Concentration of Customers

In certain periods, a small number of customers have accounted for a significant portion of the Company’s revenue. After aggregating customers that are under common control or affiliation, noone customer contributed14% and 11% of the Company's revenue for the three and nine months ended September 30, 2023, respectively. A different customer contributed 13% and 21% of the

8


Company's revenue for the three and nine months ended September 30, 2022, respectively. No customer comprised 10% or more of the Company’s revenue in the first quartertotal accounts receivable as of September 30, 2023, and one customer contributed 27% of the Company’s revenue in the first quarter of 2022. One customer comprised21% and 17% of total accounts receivable net, as of March 31, 2023 and December 31, 2022, respectively.2022.

8


Disaggregation of Revenue

The Company classifies its customers into three payor types: (i) Insurance, including claim reimbursement from the U.S. Health Resources and Services Administration, or HRSA, for uninsured individuals, (ii) Institutions,Institutional customers, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities, and large corporations, or (iii) Patients who pay directly; as the Company believes these classifications best depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. The following table summarizes revenue from contracts with customers by payor type for the first quarters ofthree and nine months ended September 30, 2023 and 2022.

 

Three Months Ended March 31,

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(in thousands)

 

(in thousands)

 

Testing Services by payor

 

 

 

 

 

 

 

 

 

 

 

 

Insurance

$

34,551

 

 

$

210,677

 

$

48,619

 

 

$

63,030

 

 

$

116,231

 

 

$

337,497

 

Institutional

 

30,992

 

 

 

109,468

 

Patient

 

625

 

 

 

123

 

Institutional customers

 

35,164

 

 

 

42,280

 

 

 

100,238

 

 

 

212,980

 

Patients

 

904

 

 

 

345

 

 

 

2,239

 

 

 

787

 

Total Revenue

$

66,168

 

 

$

320,268

 

$

84,687

 

 

$

105,655

 

 

$

218,708

 

 

$

551,264

 

The insurance revenue category above includes zero and $106.792.7 million for the first quarters of 2023three and nine months ended September 30, 2022, respectively, for services related to claims covered by the HRSA COVID-19 Uninsured Program. The Company did not recognize any insurance revenue under HRSA COVID-19 Uninsurance Program for the three and nine months ended September 30, 2023.

There was no material$18.9 million variable consideration was recognized in the current periodthree months ended September 30, 2023 that relatesrelated to performance obligations that wereCOVID-19 tests completed in the prior period.

Providedperiods due to the recent collection efforts, which was included as revenue from insurance in the table above. During the quarter ended September 30, 2023, the Company has billed insurers accurately with complete information priorexperienced a change in estimate related to variable consideration. This change resulted in a cumulative catch-up adjustment of $18.9 million. The Company estimates variable consideration using the established filing deadline, collection of the Company’s net revenues from insurers is normallyexpected value method. Any changes in variable consideration estimates that affect transactions are accounted for on a function of providing complete and correct billing information within the various filing deadlines. If there has been a delay in billing, the Company determines if the amounts in question will likely go past the filing deadline, and if so, the Company will reserve accordingly for the billing.cumulative catch-up basis.

Contract Balances

Receivables from contracts with customers - Receivables from contracts with customers are included within trade accounts receivable on the Condensed Consolidated Balance Sheets. Net receivable from Insurance and Institutional customers represented 41% and 59%, respectively, as of September 30, 2023. Net receivable from Insurance and Institutional customers represented 14% and 86%, respectively, as of both March 31, 2023 and December 31, 2022.

Contracts assets and liabilities - Contract assets from contracts with customers associated with contract execution and certain costs to fulfill a contract are included in other current assets in the accompanying Condensed Consolidated Balance Sheets. The Company did not have any contract assets as of September 30, 2023 and December 31, 2022. Contract liabilities are recorded when the Company receives payment prior to completing its obligation to transfer goods or services to a customer. Contract liabilities are included in the Condensed Consolidated Balance Sheets. Revenues of $1.3731,000 million and $11.18.5 million were recognized for the first quarters ofthree months ended September 30, 2023 and 2022, respectively, and $2.2 million and $14.4 million were recognized for the nine months ended September 30, 2023 and 2022, respectively, related to contract liabilities at the beginning of the respective periods.

Customer Deposit

Customer deposit in the accompanying Condensed Consolidated Balance Sheets consists of payments received from customers in excess of their outstanding trade accounts receivable balances. These deposits will be offset against future testing receivables or refunded to the customers.

Recent Accounting Pronouncements

9


The Company evaluates all Accounting Standards Updates, or ASUs, issued by the Financial Accounting Standards Board, or FASB, for consideration of their applicability. ASUs not included in the Company’s disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s condensed consolidated financial statements.

9


Note 3. Equity and Debt Securities

The Company’s equity and debt securities consisted of the following:

 

March 31, 2023

 

September 30, 2023

 

Amortized
Cost Basis

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Aggregate
Fair Value

 

Amortized
Cost Basis

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Aggregate
Fair Value

 

(in thousands)

 

(in thousands)

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock of privately held company

$

15,000

 

 

$

 

 

$

 

 

$

15,000

 

$

15,000

 

 

 

 

 

 

 

 

 

15,000

 

Total equity securities

 

15,000

 

 

 

 

 

 

 

 

 

15,000

 

 

15,000

 

 

 

 

 

 

 

 

 

15,000

 

Available-for-sale debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

176,704

 

 

 

 

 

 

(3,233

)

 

 

173,471

 

 

165,357

 

 

 

 

 

 

(3,162

)

 

 

162,195

 

Corporate debt securities

 

119,175

 

 

 

 

 

 

(2,383

)

 

 

116,792

 

 

85,674

 

 

 

 

 

 

(1,701

)

 

 

83,973

 

U.S. agency debt securities

 

87,707

 

 

 

67

 

 

 

(476

)

 

 

87,298

 

 

71,498

 

 

 

 

 

 

(742

)

 

 

70,756

 

U.S. treasury bills

 

67,944

 

 

 

1

 

 

 

(62

)

 

 

67,883

 

 

61,756

 

 

 

 

 

 

(18

)

 

 

61,738

 

Money market accounts

 

11,902

 

 

 

 

 

 

 

 

 

11,902

 

 

33,318

 

 

 

 

 

 

 

 

 

33,318

 

Municipal bonds

 

7,885

 

 

 

 

 

 

(72

)

 

 

7,813

 

 

5,117

 

 

 

 

 

 

(53

)

 

 

5,064

 

Less: Cash equivalents

 

(26,846

)

 

 

 

 

 

 

 

 

(26,846

)

 

(33,318

)

 

 

 

 

 

 

 

 

(33,318

)

Total debt securities due within 1 year

 

444,471

 

 

 

68

 

 

 

(6,226

)

 

 

438,313

 

 

389,402

 

 

 

 

 

 

(5,676

)

 

 

383,726

 

After 1 year through 5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

185,378

 

 

 

725

 

 

 

(3,838

)

 

 

182,265

 

 

202,084

 

 

 

6

 

 

 

(3,297

)

 

 

198,793

 

U.S. agency debt securities

 

123,823

 

 

 

229

 

 

 

(2,456

)

 

 

121,596

 

 

163,842

 

 

 

 

 

 

(3,910

)

 

 

159,932

 

Corporate debt securities

 

51,058

 

 

 

 

 

 

(2,717

)

 

 

48,341

 

 

16,208

 

 

 

 

 

 

(1,176

)

 

 

15,032

 

Municipal bonds

 

10,553

 

 

 

2

 

 

 

(121

)

 

 

10,434

 

 

7,517

 

 

 

1

 

 

 

(149

)

 

 

7,369

 

Yankee debt securities

 

753

 

 

 

 

 

 

(81

)

 

 

672

 

 

752

 

 

 

 

 

 

(84

)

 

 

668

 

Redeemable preferred stock investment

 

20,000

 

 

 

 

 

 

(7,018

)

 

 

12,982

 

 

20,000

 

 

 

 

 

 

(4,842

)

 

 

15,158

 

Total debt securities due after 1 year through 5 years

 

391,565

 

 

 

956

 

 

 

(16,231

)

 

 

376,290

 

 

410,403

 

 

 

7

 

 

 

(13,458

)

 

 

396,952

 

After 5 years through 10 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

3,580

 

 

 

 

 

 

(55

)

 

 

3,525

 

 

1,905

 

 

 

 

 

 

(40

)

 

 

1,865

 

Total debt securities due after 5 years through 10 years

 

3,580

 

 

 

 

 

 

(55

)

 

 

3,525

 

 

1,905

 

 

 

 

 

 

(40

)

 

 

1,865

 

Total available-for-sale debt securities

 

839,616

 

 

 

1,024

 

 

 

(22,512

)

 

 

818,128

 

 

801,710

 

 

 

7

 

 

 

(19,174

)

 

 

782,543

 

Total equity and debt securities

$

854,616

 

 

$

1,024

 

 

$

(22,512

)

 

$

833,128

 

$

816,710

 

 

$

7

 

 

$

(19,174

)

 

$

797,543

 

 

10


 

 

December 31, 2022

 

 

Amortized
Cost Basis

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Aggregate
Fair Value

 

 

(in thousands)

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

Long-term

 

 

 

 

 

 

 

 

 

 

 

Preferred stock of privately held company

$

15,000

 

 

$

 

 

$

 

 

$

15,000

 

Total equity securities

 

15,000

 

 

 

 

 

 

 

 

 

15,000

 

Available-for-sale debt securities

 

 

 

 

 

 

 

 

 

 

 

Short-term

 

 

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

189,333

 

 

 

 

 

 

(3,373

)

 

 

185,960

 

Corporate debt securities

 

120,480

 

 

 

 

 

 

(2,222

)

 

 

118,258

 

U.S. treasury bills

 

69,991

 

 

 

 

 

 

(193

)

 

 

69,798

 

U.S. agency debt securities

 

68,411

 

 

 

 

 

 

(342

)

 

 

68,069

 

Money market accounts

 

27,455

 

 

 

 

 

 

 

 

 

27,455

 

Municipal bonds

 

7,371

 

 

 

 

 

 

(80

)

 

 

7,291

 

Yankee debt securities

 

2,347

 

 

 

 

 

 

(5

)

 

 

2,342

 

Less: Cash equivalents

 

(32,444

)

 

 

 

 

 

 

 

 

(32,444

)

Total debt securities due within 1 year

 

452,944

 

 

 

 

 

 

(6,215

)

 

 

446,729

 

After 1 year through 5 years

 

 

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

152,435

 

 

 

2

 

 

 

(6,349

)

 

 

146,088

 

U.S. agency debt securities

 

92,054

 

 

 

 

 

 

(3,435

)

 

 

88,619

 

Corporate debt securities

 

80,647

 

 

 

 

 

 

(4,756

)

 

 

75,891

 

Municipal bonds

 

12,065

 

 

 

 

 

 

(217

)

 

 

11,848

 

Yankee debt securities

 

753

 

 

 

 

 

 

(85

)

 

 

668

 

Redeemable preferred stock investment

 

20,000

 

 

 

 

 

 

(7,615

)

 

 

12,385

 

Total debt securities due after 1 year through 5 years

 

357,954

 

 

 

2

 

 

 

(22,457

)

 

 

335,499

 

After 5 years through 10 years

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

3,617

 

 

 

 

 

 

(83

)

 

 

3,534

 

Total debt securities due after 5 years through 10 years

 

3,617

 

 

 

 

 

 

(83

)

 

 

3,534

 

Total available-for-sale debt securities

 

814,515

 

 

 

2

 

 

 

(28,755

)

 

 

785,762

 

Total equity and debt securities

$

829,515

 

 

$

2

 

 

$

(28,755

)

 

$

800,762

 

 

Gross unrealized losses on the Company’s equity and debt securities were $22.519.2 million and $28.8 million as of March 31,September 30, 2023 and December 31, 2022, respectively. The Company did not recognize any credit losses for its available-for-sale debt securities during the first quarters ofthree and nine months ended September 30, 2023 and 2022.

The Company’s marketable securities of $478.0 million, managed by the custodian of the Company’s marketable debt security investment account, of which the Company has an outstanding margin loan, is used as collateral for the margin account borrowing. See Note 8, Debt, Commitments and Contingencies, for more information on the margin loan.

Note 4. Fair Value Measurements

The authoritative guidance on fair value measurements establishes a framework with respect to measuring assets and liabilities at fair value on a recurring basis and non-recurring basis. Under the framework, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The framework also establishes a three-tier hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability and are developed based on the best information available in the circumstances. The hierarchy consists of the following three levels:

Level 1:

Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

11


Level 2:

Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3:

Inputs are unobservable for the asset or liability.

 

11


The following tables present information about the Company’s financial assets measured at fair value on a recurring basis, based on the above three-tier fair value hierarchy:

 

March 31, 2023

 

September 30, 2023

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

(in thousands)

 

(in thousands)

 

Equity securities, debt securities and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government debt securities

$

355,736

 

 

$

 

 

$

355,736

 

 

$

 

$

360,988

 

 

$

 

 

$

360,988

 

 

$

 

U.S. agency debt securities

 

208,894

 

 

 

 

 

 

208,894

 

 

 

 

 

230,688

 

 

 

 

 

 

230,688

 

 

 

 

Corporate debt securities

 

165,133

 

 

 

 

 

 

165,133

 

 

 

 

 

99,005

 

 

 

 

 

 

99,005

 

 

 

 

U.S. treasury bills

 

67,883

 

 

 

67,883

 

 

 

 

 

 

 

 

61,738

 

 

 

61,738

 

 

 

 

 

 

 

Money market accounts

 

33,318

 

 

 

33,318

 

 

 

 

 

 

 

Municipal bonds

 

21,772

 

 

 

 

 

 

21,772

 

 

 

 

 

14,298

 

 

 

 

 

 

14,298

 

 

 

 

Preferred stock of privately held company

 

15,000

 

 

 

 

 

 

 

 

 

15,000

 

 

15,000

 

 

 

 

 

 

 

 

 

15,000

 

Redeemable preferred stock investment

 

12,982

 

 

 

 

 

 

 

 

 

12,982

 

 

15,158

 

 

 

 

 

 

 

 

 

15,158

 

Money market accounts

 

11,902

 

 

 

11,902

 

 

 

 

 

 

 

Yankee debt securities

 

672

 

 

 

 

 

 

672

 

 

 

 

 

668

 

 

 

 

 

 

668

 

 

 

 

Total equity securities, debt securities and cash equivalents

$

859,974

 

 

$

79,785

 

 

$

752,207

 

 

$

27,982

 

$

830,861

 

 

$

95,056

 

 

$

705,647

 

 

$

30,158

 

 

 

December 31, 2022

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

(in thousands)

 

Equity securities, debt securities and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

U.S. government debt securities

$

332,048

 

 

$

 

 

$

332,048

 

 

$

 

Corporate debt securities

 

194,149

 

 

 

 

 

 

194,149

 

 

 

 

U.S. agency debt securities

 

156,688

 

 

 

 

 

 

156,688

 

 

 

 

U.S. treasury bills

 

69,798

 

 

 

69,798

 

 

 

 

 

 

 

Money market accounts

 

27,455

 

 

 

27,455

 

 

 

 

 

 

 

Municipal bonds

 

22,673

 

 

 

 

 

 

22,673

 

 

 

 

Preferred stock of privately held company

 

15,000

 

 

 

 

 

 

 

 

 

15,000

 

Redeemable preferred stock investment

 

12,385

 

 

 

 

 

 

 

 

 

12,385

 

Yankee debt securities

 

3,010

 

 

 

 

 

 

3,010

 

 

 

 

Total equity securities, debt securities and cash equivalents

$

833,206

 

 

$

97,253

 

 

$

708,568

 

 

$

27,385

 

 

The Company’s Level 1 assets include U.S. treasury bills and money market instruments and are valued based upon observable market prices. Level 2 assets consist of U.S. government and U.S. agency debt securities, municipal bonds, corporate debt securities and Yankee debt securities. Level 2 securities are valued based upon observable inputs that include reported trades, broker/dealer quotes, bids and offers. As of March 31,September 30, 2023, the Company had preferred stock of a privately held company, which was included in other long-term assets in the accompanying Condensed Consolidated Balance Sheets, and redeemable preferred stock of a private company that were measured using unobservable (Level 3) inputs. The fair value of redeemable preferred stock as of March 31,September 30, 2023 and December 31, 2022 was based on valuation performed by a third-party valuation company utilizing the guideline public company method under market approach and the discounted cash flow method under income approach. For the value of the investment in private equity securities, the Company elected to measure it at cost minus impairment, as the preferred stock of the privately held company did not have a readily determinable fair value, and no impairment loss was recorded as of March 31,September 30, 2023.

There were no transfers between fair value measurement levels during the first quarters ofthree and nine months ended September 30, 2023 and 2022.

12


Note 5. Fixed Assets

Major classes of fixed assets consisted of the following:

 

 

March 31,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

Useful Lives

2023

 

 

2022

 

Useful Lives

2023

 

 

2022

 

 

(in thousands)

 

 

(in thousands)

 

Medical lab equipment

5 months to 12 Years

$

53,523

 

 

$

53,503

 

5 months to 12 Years

$

50,898

 

 

$

53,503

 

Leasehold improvements

Shorter of lease term or estimated useful life

 

11,824

 

 

 

11,804

 

Shorter of lease term or estimated useful life

 

11,065

 

 

 

11,804

 

Building

39 Years

 

9,781

 

 

 

6,731

 

Computer software

1 to 5 Years

 

8,079

 

 

 

6,982

 

1 to 5 Years

 

7,739

 

 

 

6,982

 

Building improvements

6 months to 39 Years

 

7,703

 

 

 

5,865

 

Computer hardware

1 to 5 Years

 

7,238

 

 

 

6,979

 

1 to 5 Years

 

6,485

 

 

 

6,979

 

Building

39 Years

 

6,731

 

 

 

6,731

 

Aircraft

7 Years

 

6,400

 

 

 

6,400

 

7 Years

 

6,400

 

 

 

6,400

 

Building improvements

6 months to 39 Years

 

5,878

 

 

 

5,865

 

Furniture and fixtures

1 to 5 Years

 

3,822

 

 

 

4,248

 

1 to 5 Years

 

3,751

 

 

 

4,248

 

Land improvements

5 to 15 Years

 

904

 

 

 

904

 

5 to 15 Years

 

904

 

 

 

904

 

Automobile

2 to 7 Years

 

506

 

 

 

797

 

3 to 7 Years

 

347

 

 

 

797

 

General equipment

3 to 5 Years

 

44

 

 

 

44

 

3 to 5 Years

 

115

 

 

 

44

 

Land

 

 

7,500

 

 

 

7,500

 

 

 

8,800

 

 

 

7,500

 

Assets not yet placed in service

 

 

12,773

 

 

 

12,877

 

 

 

18,385

 

 

 

12,877

 

Total

 

 

125,222

 

 

 

124,634

 

 

 

132,373

 

 

 

124,634

 

Less: Accumulated depreciation

 

 

(46,139

)

 

 

(43,281

)

 

 

(47,108

)

 

 

(43,281

)

Fixed assets, net

 

$

79,083

 

 

$

81,353

 

 

$

85,265

 

 

$

81,353

 

Depreciation expenses on fixed assets totaled $4.74.3 million and $3.77.6 million for the first quarters ofthree months ended September 30, 2023 and 2022, respectively, and $13.1 million and $17.9 million for the nine months ended September 30, 2023 and 2022, respectively.

Note 6. Other Significant Balance Sheet Accounts

Other current assets consisted of the following:

 

March 31,

 

 

December 31,

 

September 30,

 

 

December 31,

 

2023

 

 

2022

 

2023

 

 

2022

 

(in thousands)

 

(in thousands)

 

Prepaid income taxes

$

16,432

 

 

$

15,434

 

$

14,965

 

 

$

15,434

 

Prepaid expenses

 

6,875

 

 

 

6,814

 

 

7,583

 

 

 

6,814

 

Reagents and supplies

 

4,722

 

 

 

4,280

 

 

4,877

 

 

 

4,280

 

Marketable securities interest receivable

 

3,844

 

 

 

2,525

 

 

4,236

 

 

 

2,525

 

Other receivable

 

816

 

 

 

19,836

 

 

1,115

 

 

 

19,836

 

Total

$

32,689

 

 

$

48,889

 

$

32,776

 

 

$

48,889

 

Other receivable as of December 31, 2022 includes $19.1 million of maturities of marketable securities that did not settle until after period-end.

Other long-term liabilities primarily include operating and finance lease liabilities, long-term, see Note 9, Leases, and notes payable, long-term, see Note 8, Debt, Commitments and Contingencies.

Note 7. Reporting Segment and Geographic Information

The Company views its operations and manages its business in one reporting segment. Long-lived assets were primarily located in the United States as of March 31,September 30, 2023 and December 31, 2022. Revenue by region during the first quarters ofthree and nine months ended September 30, 2023 and 2022 were as follows:

 

Three Months Ended March 31,

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(in thousands)

 

(in thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

United States

$

62,062

 

 

$

317,190

 

$

78,974

 

 

$

101,515

 

 

$

204,087

 

 

$

540,801

 

Foreign

 

4,106

 

 

 

3,078

 

 

5,713

 

 

 

4,140

 

 

 

14,621

 

 

 

10,463

 

Total

$

66,168

 

 

$

320,268

 

$

84,687

 

 

$

105,655

 

 

$

218,708

 

 

$

551,264

 

 

13


Note 8. Debt, Commitments and Contingencies

Debt

As of March 31,September 30, 2023, the Company had andid not have any outstanding borrowing of $15.0 million under its margin account with the custodian of the Company’s marketable debt security investment account, Pershing Advisor Solutions, LLC, a BNY Mellon Company. Margin account borrowings were used for the purchase of real property located in El Monte, California in 2020. The securities in the brokerage account were used as collateral for the margin loan. The custodian can issue a margin call at any time. The interest rate on the margin loan was the effective federal funds rate, or EFFR, plus a spread. The EFFR and/or the spread can be changed by BNY Mellon at any time. The interest was 1% at the time of withdrawal of $15.0 million from the margin account, and the interest rate at March 31, 2023 was 5%. The Company did not make any other withdrawals from the margin account, and the outstanding balance is included in the accompanying Condensed Consolidated Balance Sheets. The related interest expenses for the first quarters ofthree and nine months ended September 30, 2023 were zeroand $336,000, respectively. The related interest expenses for the three and nine months ended September 30, 2022 were $200,000105,000 and $29,000185,000, respectively.

Notes payable as of March 31,September 30, 2023 consisted of $3.4 million of notes payable related to an installment sale contract the Company entered in February 2022 for a building and $5.22.5 million of notes payable to Xilong Scientific Co., or Xilong Scientific, by Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech. The notes payable related to the installment sale are due in February 2030, and the interest rate is 1.08%. The current portion and noncurrent portion are $408,000 and $3.0 million, respectively, and the noncurrent portion is included in the other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets. The notes payable to Xilong Scientific were extended to and are due on December 31, 2023, and the interest rate on the loan is 4.97%. The related interest expenses for the first quarters ofthree and nine months ended September 30, 2023 were $54,000and $199,000, respectively. The related interest expenses for the three and nine months ended September 30, 2022 were $75,000 and $78,000231,000, respectively.

Operating Leases

See Note 9, Leases, for further information.

Purchase Obligations

The Company entered certain noncancelable purchase commitments with its vendors, which primarily consist of services, reagent and supplies, computer software, and medical lab equipment. As of March 31,September 30, 2023, the Company had non-cancelable purchase obligations of $17.851.1 million, of which $8.424.0 million for computer software and hardware, $3.3 million for services, $2.4 million for reagents and other supplies, and $487,000 for medical lab equipment areis payable within twelve months, and the remainder, $2.427.1 million, for computer software and $885,000 for services areis payable within the next thirty-six months.five years.

Contingencies

From time to time, the Company may be subject to legal proceedings and claims arising in the ordinary course of business. In the opinion of management, the outcome of these matters would not have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

The Company has received a Civil Investigative Demand, or CID, issued by the U.S. Department of Justice pursuant to the False Claims Act related to its investigation of allegations of medically unnecessary laboratory testing, improper billing for laboratory testing, and remuneration received or provided in violation of the Anti-Kickback Statute and the Stark Law. ThisAmong other things, this CID requests information and records relating to certain of the Company’s customers named in the CID, which represent a small portion of the Company’s revenues. As previously disclosed in the Company’s prior filings, the U.S. Securities and Exchange Act reports,Commission, or the SEC is also conducting a non-public formal investigation, which appears to relate to the matters raised in the CID requests and our Exchange Act reports filed for 2018 through 2020. The Company is fully cooperating with the U.S. Department of Justice and the SEC to promptly respond to the requests for information in this CID and investigation and does not presently expect this CID or resulting investigation or the SEC investigation to have a material adverse impact. However, the Company cannot predict when these matters will be resolved, the outcome of these matters, or their potential impact, which may ultimately be greater than what the Company currently expects.

Note 9. Leases

Lessee

The Company is a lessee to various non-cancelable operating leases with varying terms through March 2028April 2033 primarily for laboratory and office space and equipment. The Company has options to renew some of these leases after their expirations. On a lease-by-lease basis, the Company considers such options, which may be elected at the Company’s sole discretion, in determining the lease term. The Company also has various finance leases for lab equipment with varying terms through December 2026, some of which were acquired in business combinations. The Company does not have any leases with variable lease payments. The Company’s operating lease agreements do not contain any residual value guarantees, material restrictive covenants, bargain purchase options, or asset retirement obligations.

14


The Company’s headquarters are located in El Monte, California, which is comprised of various corporate offices and a laboratory certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, accredited by the College of American Pathologists, or CAP, and licensed by the State of California Department of Public Health. Other CLIA-certified laboratories are located in Temple City, California; Irving, Texas; Needham, Massachusetts; Phoenix, Arizona; Alpharetta, Georgia; and New York, New York.

The operating and finance lease right-of-use asset, short-term lease liabilities, and long-term lease liabilities as of March 31,September 30, 2023 and December 31, 2022 were as follows:

 

March 31,

 

 

December 31,

 

September 30,

 

 

December 31,

 

2023

 

 

2022

 

2023

 

 

2022

 

(in thousands)

 

(in thousands)

 

Operating lease ROU asset, net

$

13,227

 

 

$

14,784

 

$

12,406

 

 

$

14,784

 

Operating lease liabilities, short term

$

6,095

 

 

$

6,132

 

$

4,994

 

 

$

6,132

 

Operating lease liabilities, long term

$

7,309

 

 

$

8,795

 

$

7,684

 

 

$

8,795

 

Finance lease ROU asset, net

$

2,543

 

 

$

2,784

 

$

1,444

 

 

$

2,784

 

Finance lease liabilities, short term

$

954

 

 

$

943

 

$

537

 

 

$

943

 

Finance lease liabilities, long term

$

1,575

 

 

$

1,818

 

$

894

 

 

$

1,818

 

The following were operating and finance lease expenses:

 

Three Months Ended March 31,

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(in thousands)

 

(in thousands)

 

Operating lease cost

$

1,702

 

 

$

538

 

$

1,703

 

 

$

1,770

 

 

$

5,239

 

 

$

3,674

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of ROU assets

 

243

 

 

 

96

 

 

136

 

 

 

225

 

 

 

622

 

 

 

490

 

Interest on lease liabilities

 

27

 

 

 

14

 

 

15

 

 

 

31

 

 

 

67

 

 

 

66

 

Short-term lease cost

 

501

 

 

 

97

 

 

453

 

 

 

112

 

 

 

1,460

 

 

 

1,042

 

Total lease cost

$

2,473

 

 

$

745

 

$

2,307

 

 

$

2,138

 

 

$

7,388

 

 

$

5,272

 

Supplemental information related to operating and finance leases were the following:

 

 

March 31,September 30, 2023

 

Weighted average remaining lease term - operating leases

3.124.24 years

 

Weighted average discount rate - operating leases

 

3.794.01

%

Weighted average remaining lease term - finance-finance lease

2.872.89 years

 

Weighted average discount rate - finance lease

 

3.963.77

%

The following is a maturity analysis of operating and finance lease liabilities using undiscounted cash flows on an annual basis with renewal periods included:

 

Operating Leases

 

 

Finance Lease

 

Operating Leases

 

 

Finance Lease

 

(in thousands)

 

(in thousands)

 

Year Ending December 31,

 

 

 

 

 

 

 

 

2023 (remaining 9 months)

$

4,929

 

 

$

727

 

2023 (remaining 3 months)

$

1,643

 

 

$

96

 

2024

 

4,073

 

 

 

1,033

 

 

4,356

 

 

 

579

 

2025

 

2,119

 

 

 

547

 

 

2,407

 

 

 

467

 

2026

 

1,522

 

 

 

366

 

 

1,784

 

 

 

366

 

2027

 

1,360

 

 

 

 

 

1,684

 

 

 

 

2028

 

541

 

 

 

 

Thereafter

 

216

 

 

 

 

 

1,509

 

 

 

 

Total lease payments

 

14,219

 

 

 

2,673

 

 

13,924

 

 

 

1,508

 

Less imputed interest

 

(815

)

 

 

(144

)

 

(1,246

)

 

 

(77

)

Total

$

13,404

 

 

$

2,529

 

$

12,678

 

 

$

1,431

 

 

15


Lessor

The Company leases out space in buildings it owns and leases to third-party tenants under noncancelable operating leases. As of March 31,September 30, 2023, the remaining lease terms range from 93 months to 2115 months, including renewal options and may include rent escalation clauses. Lease income primarily represents fixed lease payments from tenants recognized on a straight-line basis over the application lease term. Variable lease income represents tenant payments for real estate taxes, insurance, and maintenance.

The lease income was included in interest and other income, net, in the accompanying Condensed Consolidated Statements of Operations. Total lease income was as follows:

 

Three Months Ended March 31,

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(in thousands)

 

(in thousands)

 

Lease income

$

45

 

 

$

97

 

$

36

 

 

$

48

 

 

$

119

 

 

$

229

 

Variable lease income

 

 

 

 

1

 

 

1

 

 

 

 

 

 

8

 

 

 

12

 

Total lease income

$

45

 

 

$

98

 

$

37

 

 

$

48

 

 

$

127

 

 

$

241

 

Future fixed lease payments from tenants for all noncancelable operating leases as March 31,of September 30, 2023 are as follows:

 

Lease Payments

 

Lease Payments

 

from Tenants

 

from Tenants

 

(in thousands)

 

(in thousands)

 

Year Ending December 31,

 

 

 

 

2023 (remaining 9 months)

$

136

 

2023 (remaining 3 months)

$

36

 

2024

 

94

 

 

90

 

Total

$

230

 

$

126

 

 

Note 10. Equity-Based Compensation

The Company has included equity-based compensation expense as part of cost of revenue and operating expenses in the accompanying Condensed Consolidated Statements of Operations as follows:

 

Three Months Ended March 31,

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(in thousands)

 

(in thousands)

 

Cost of revenue

$

2,394

 

 

$

1,465

 

$

2,621

 

 

$

2,475

 

 

$

7,374

 

 

$

6,183

 

Research and development

 

3,448

 

 

 

1,921

 

 

3,782

 

 

 

2,687

 

 

 

10,900

 

 

 

7,110

 

Selling and marketing

 

1,361

 

 

 

825

 

 

1,189

 

 

 

1,243

 

 

 

3,644

 

 

 

3,148

 

General and administrative

 

3,062

 

 

 

1,405

 

 

3,310

 

 

 

2,567

 

 

 

9,572

 

 

 

6,177

 

Total

$

10,265

 

 

$

5,616

 

$

10,902

 

 

$

8,972

 

 

$

31,490

 

 

$

22,618

 

16


 

Note 11. (Benefit from) Provision for Income Taxes

The effective tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur. The annual effective tax rate is based upon several significant estimates and judgments, including the estimated annual pre-tax income of the Company in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year. In addition, the Company’s tax expense can be impacted by changes in tax rates or laws and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

The Company recorded consolidated benefit from income taxes of $(5.2) million for the first quarter of 2023 and a consolidated provision for income taxes of $48.420.3 million and $12.0 million for the first quarter of 2022.three and nine months ended September 30, 2023, respectively, compared with $414,000 and $51.5 million for the three and nine months ended September 30, 2022, respectively. The Company’s effective tax rate was 296% and (2542%) for the first quarter ofthree and nine months ended September 30, 2023, respectively, compared withto 24% for both the firstthree and nine months ended September 30, 2022. The change in the effective tax rate compared to prior periods is due to the establishment, in the current quarter, of 2022.a valuation allowance on the Company's net deferred tax assets.

The Company is not currently under examination by any major incomecertain tax jurisdiction.authorities for the 2020 to 2021 tax years. While the timing of the conclusion of the examination is uncertain, the Company believes that adequate amounts have been reserved for adjustments that may result. During 2023, the statutes of limitations will lapse on the Company’s 2019 federal tax year and certain 2018 and 2019 state tax years. The Company does not believe the federal or state statute lapses or any other event will significantly impact the balance of unrecognized tax benefits in the next twelve months.

16


Note 12. Income (Loss) per Share

The following table presents the calculation of basic and diluted income (loss) per share for the first quarters ofthree and nine months ended September 30, 2023 and 2022:

 

Three Months Ended March 31,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(in thousands, except per share data)

(in thousands, except per share data)

 

Net income (loss) attributable to Fulgent

$

(15,340

)

 

$

153,979

 

 

$

(13,107

)

 

$

1,719

 

 

$

(39,676

)

 

$

167,235

 

Weighted-average common shares—outstanding, basic

 

29,536

 

 

 

30,234

 

 

 

30,013

 

 

 

30,174

 

 

 

29,789

 

 

 

30,256

 

Weighted-average common shares—outstanding, diluted

 

29,536

 

 

 

31,240

 

 

 

30,013

 

 

 

30,867

 

 

 

29,789

 

 

 

31,107

 

Net income (loss) per common share, basic

$

(0.52

)

 

$

5.09

 

 

$

(0.44

)

 

$

0.06

 

 

$

(1.33

)

 

$

5.53

 

Net income (loss) per common share, diluted

$

(0.52

)

 

$

4.93

 

 

$

(0.44

)

 

$

0.06

 

 

$

(1.33

)

 

$

5.38

 

The following securities have been excluded from the calculation of diluted income (loss) per share because their effect would have been anti-dilutive:

 

Three Months Ended March 31,

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2023

 

 

2022

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(in thousands)

 

(in thousands)

 

Options

 

211

 

 

 

5

 

 

215

 

 

 

7

 

 

 

212

 

 

 

10

 

Restricted Stock Units

 

2,040

 

 

 

352

 

 

1,315

 

 

 

1,238

 

 

 

1,196

 

 

 

697

 

Contingently Issuable Shares

 

371

 

 

 

 

 

371

 

 

 

 

 

 

371

 

 

 

 

 

The anti-dilutive shares described above were calculated using the treasury stock method. In the first quarter ofthree and nine months ended September 30, 2023, the Company had outstanding stock options and restricted stock unitunits and contingently issuable shares for held back related shares to the business combination of Fulgent Pharma that were excluded from the weighted-average share calculation for continuing operations due to the Company’s net loss positions.

Note 13. Related Parties

Linda Marsh, who is a member of the Company’s Board of Directors, or the Board, is currently serves as the Senior Executive Vice President of AHMC Healthcare Inc., or AHMC. The Company performs genetic testing and other testing services, on an arms-length basis, for AHMC, and the Company recognized $95,0006,000 and $775,000122,000 in revenue from AHMC in the three and nine months ended September 30, 2023, respectively. The Company recognized $299,000 and $1.3 million in revenue from AHMC in the first quarters of 2023three and

17


nine months ended September 30, 2022, respectively. As of March 31,September 30, 2023 and December 31, 2022, $66,00013,000 and $93,000, respectively, was owed to the Company by AHMC, which is included in trade accounts receivable, net, in the accompanying Condensed Consolidated Balance Sheets, in connection with this relationship.

Ming Hsieh, the Chief Executive Officer and Chairperson of the Board, is on the board of directors and a 20% owner of ANP Technologies, Inc., or ANP, from which the Company purchased COVID-19 antigen rapid test kits and entered into certain drug-related licensing and development service agreements. The President and Chief Scientific Officer of Fulgent Pharma, Ray Yin, is the Founder, President, and Chief Technology Officer of ANP. The Company incurred $959,000368,000 and $1.9 million in expenses, in the three and nine months ended September 30, 2023, respectively, related to the licensing and development services and purchases of equipment and COVID-19 antigen rapid test kitskits. The Company incurred $120,000 and $280,000 in expenses in the first quarter of 2023. No costs were incurred in the first quarter of 2022.three and nine months ended September 30, 2022, respectively, for COVID-19 antigen rapid test kits. As of March 31,September 30, 2023 and December 31, 2022, $890,000255,000 and $607,000, respectively, were owed to ANP by the Company in connection with these relationships. The Company also entered into an employee service agreement with ANP in April 2023, $32,000 and $70,000 were recognized in the three and nine months ended September 30, 2023, respectively, and $70,000 was owed by ANP in connection with the employee service agreement as of September 30, 2023.

17


Note 14. Goodwill and Acquisition-Related Intangibles

Summaries of goodwill and intangibles balances assets as of March 31,September 30, 2023 and December 31, 2022 were as follows:

 

 

March 31,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

Weighted-Average Amortization Period

2023

 

 

2022

 

Weighted-Average Amortization Period

2023

 

 

2022

 

 

(in thousands)

 

 

(in thousands)

 

Goodwill

 

$

143,120

 

 

$

143,027

 

 

$

141,844

 

 

$

143,027

 

 

 

 

 

 

 

 

 

 

 

In-process research & development

n/a

$

64,590

 

 

$

64,590

 

n/a

$

64,590

 

 

$

64,590

 

 

 

 

 

 

 

 

 

 

 

Royalty-free technology

10 Years

 

5,388

 

 

 

5,364

 

10 Years

 

5,071

 

 

 

5,364

 

Less: accumulated amortization

 

 

(1,033

)

 

 

(894

)

 

 

(1,225

)

 

 

(894

)

Royalty-free technology, net

 

 

4,355

 

 

 

4,470

 

 

 

3,846

 

 

 

4,470

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

13 Years

 

82,755

 

 

 

82,750

 

13 Years

 

82,686

 

 

 

82,750

 

Less: accumulated amortization

 

 

(7,814

)

 

 

(6,215

)

 

 

(10,976

)

 

 

(6,215

)

Customer relationships, net

 

 

74,941

 

 

 

76,535

 

 

 

71,710

 

 

 

76,535

 

 

 

 

 

 

 

 

 

 

 

Trade name

8 Years

 

3,790

 

 

 

3,790

 

8 Years

 

3,790

 

 

 

3,790

 

Less: accumulated amortization

 

 

(535

)

 

 

(412

)

 

 

(782

)

 

 

(412

)

Trade name, net

 

 

3,255

 

 

 

3,378

 

 

 

3,008

 

 

 

3,378

 

 

 

 

 

 

 

 

 

 

 

In-place lease intangible assets

5 Years

 

360

 

 

 

360

 

5 Years

 

360

 

 

 

360

 

Less: accumulated amortization

 

 

(64

)

 

 

(46

)

 

 

(99

)

 

 

(46

)

In-place lease intangible assets, net

 

 

296

 

 

 

314

 

 

 

261

 

 

 

314

 

 

 

 

 

 

 

 

 

 

 

Laboratory information system platform

5 Years

 

1,860

 

 

 

1,860

 

5 Years

 

1,860

 

 

 

1,860

 

Less: accumulated amortization

 

 

(620

)

 

 

(527

)

 

 

(806

)

 

 

(527

)

Laboratory information system platform, net

 

 

1,240

 

 

 

1,333

 

 

 

1,054

 

 

 

1,333

 

 

 

 

 

 

 

 

 

 

 

Purchased patent

10 Years

 

29

 

 

 

29

 

10 Years

 

27

 

 

 

29

 

Less: accumulated amortization

 

 

(7

)

 

 

(6

)

 

 

(7

)

 

 

(6

)

Purchased patent, net

 

 

22

 

 

 

23

 

 

 

20

 

 

 

23

 

Total intangible assets, net

 

$

148,699

 

 

$

150,643

 

 

$

144,489

 

 

$

150,643

 

18


Acquisition-related intangibles included in the above tables are generally finite-lived and are carried at cost less accumulated amortization, except for In-Process Research and Development, or IPR&D, which is related to a business combination in 2022 and has an indefinite life until research and development efforts are completed or abandoned. All other finite-lived acquisition-related intangibles related to the business combinations in 2022 and 2021 are amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized.
 

Changes in the carrying amount of goodwill for the first quarter ofnine months ended September 30, 2023 are as follows:

 

 

Amounts

 

 

(in thousands)

 

Balance as of January 1, 2023

 

 

Goodwill

$

143,027

 

Accumulated impairment losses

 

 

 

 

143,027

 

 

 

 

Net foreign currency exchange differences

 

93

 

 

 

 

Balance as of March 31, 2023

 

 

Goodwill

 

143,120

 

Accumulated impairment losses

 

 

 

 

143,120

 

18


 

Amounts

 

 

(in thousands)

 

Balance as of January 1, 2023

 

 

Goodwill

$

143,027

 

Accumulated impairment losses

 

 

 

 

143,027

 

 

 

 

Net foreign currency exchange differences

 

(1,183

)

 

 

 

Balance as of September 30, 2023

 

 

Goodwill

 

141,844

 

Accumulated impairment losses

 

 

 

$

141,844

 

Based on the carrying value of finite-lived intangible assets recorded as of March 31,September 30, 2023, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for intangible assets is expected to be as follows:

 

Amounts

 

Amounts

 

(in thousands)

 

(in thousands)

 

Year Ending December 31,

 

 

 

 

2023 (remaining 9 months)

$

5,900

 

2023 (remaining 3 months)

$

1,955

 

2024

 

7,867

 

 

7,822

 

2025

 

7,867

 

 

7,822

 

2026

 

7,557

 

 

7,521

 

2027

 

7,228

 

 

7,196

 

2028

 

7,193

 

 

7,161

 

Thereafter

 

40,497

 

 

40,422

 

Total

$

84,109

 

$

79,899

 

 

Note 15. Stock Repurchase Program

In March 2022, the Board authorized a $250.0 million stock repurchase program. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions. The stock repurchase program has no expiration from the date of authorization.

During the first quarters ofthree and nine months ended September 30, 2023, and 2022, the Company didrepurchased no80,000t repurchase any shares of its common stock.stock at an aggregate cost of $2.2 million under the stock repurchase program. During the three months ended September 30, 2022, the Company repurchased 780,000 shares of its common stock at an aggregate cost of $34.7 million. During the nine months ended September 30, 2022, the Company repurchased 995,000 shares of its common stock at an aggregate cost of $45.3 million. As of March 31,September 30, 2023, a total of approximately $175.7173.5 million remained available for future repurchases of its common stock under the stock repurchase program.

Note 16. Subsequent Events

AsIn October 2023, the Company repurchased 533,000 shares of May 1, 2023, no subsequent events are being reported.its common stock at an aggregate cost of $13.7 million under the stock repurchase program approved in March 2022. See Note 15, Stock Repurchase Program.

19


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included in this report. Additionally, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission, or SEC, in preparing this discussion and analysis, we presume that readers have access to and have read the discussion and analysis of our financial condition and results of operations included in our annual report on Form 10-K for our fiscal year ended December 31, 2022, filed with the SEC on February 28, 2023, or the 2022 Annual Report. As used in this discussion and analysis and elsewhere in this report, unless the context otherwise requires, the terms “Fulgent,” the “Company,” “we,” “us” and “our” refer to Fulgent Genetics, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are statements other than historical facts and relate to future events or circumstances or our future performance, and they are based on our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. The forward-looking statements in this discussion and analysis include statements about, among other things, our future financial and operating performance, our future cash flows and liquidity and our growth strategies, as well as anticipated trends in our business and industry. These forward-looking statements are subject to a number of risks and uncertainties, including, among others, those described under “Item 1A. Risk Factors” in Part I of the 2022 Annual Report. Moreover, we operate in a competitive and rapidly evolving industry and new risks emerge from time to time. It is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. In light of these risks and uncertainties, the forward-looking events and circumstances described in this discussion and analysis may not occur, and actual results could differ materially and adversely from those described in or implied by any forward-looking statements we make. Although we have based our forward-looking statements on assumptions and expectations we believe are reasonable, we cannot guarantee future results, levels of activity, performance or achievements or other future events. As a result, forward-looking statements should not be relied on or viewed as predictions of future events, and this discussion and analysis should be read with the understanding that actual future results, levels of activity, performance and achievements may be materially different than our current expectations. The forward-looking statements in this discussion and analysis speak only as of the date of this report, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

Overview

We are a technology-based company with a well-established clinical diagnostic business and a therapeutic development business. Our clinical diagnostic business offers molecular diagnostic testing services, comprehensive genetic testing, and high-quality anatomic pathology laboratory services designed to provide physicians and patients with clinically actionable diagnostic information to improve the quality of patient care. Our therapeutic development business is focused on developing drug candidates for treating a broad range of cancers using a novel nanoencapsulation and targeted therapy platform designed to improve the therapeutic window and pharmacokinetic profile or PK profile, of new and existing cancer drugs. We aim to transform from a genomic diagnostic business into a fully integrated precision medicine company.

Business Risks and Uncertainties and Other Factors Affecting Our Performance

Our business and prospects are exposed to numerous risks and uncertainties. For more information, see “Item 1A. Risk Factors” in Part I of the 2022 Annual Report. In addition, our performance in any period is affected by a number of other factors. See the description of some of the material factors affecting our performance in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2022 Annual Report.

 

20


Results of Operations

The table below summarizes our results of our continuing operations for each of the periods presented. For a financial overview relating to our results of operations, including general descriptions of the make-up of material line items of our statement of operation data, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2022 Annual Report.

 

Three Months Ended

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

March 31,

 

 

$

 

%

September 30,

 

 

$

 

%

 

September 30,

 

 

$

 

%

2023

 

 

2022

 

 

Change

 

 

Change

2023

 

 

2022

 

 

Change

 

 

Change

 

2023

 

 

2022

 

 

Change

 

 

Change

Statement of Operations Data:

(in thousands)

Statement of Operation Data:

(in thousands)

Revenue

$

66,168

 

 

$

320,268

 

 

$

(254,100

)

 

(79%)

$

84,687

 

 

$

105,655

 

 

$

(20,968

)

 

(20%)

 

$

218,708

 

 

$

551,264

 

 

$

(332,556

)

 

(60%)

Cost of revenue

 

47,357

 

 

 

77,725

 

 

 

(30,368

)

 

(39%)

 

44,843

 

 

 

59,560

 

 

 

(14,717

)

 

(25%)

 

 

139,481

 

 

 

197,350

 

 

 

(57,869

)

 

(29%)

Gross profit

 

18,811

 

 

 

242,543

 

 

 

(223,732

)

 

(92%)

 

39,844

 

 

 

46,095

 

 

 

(6,251

)

 

(14%)

 

 

79,227

 

 

 

353,914

 

 

 

(274,687

)

 

(78%)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

9,782

 

 

 

5,989

 

 

 

3,793

 

 

63%

 

10,014

 

 

 

7,507

 

 

 

2,507

 

 

33%

 

 

29,488

 

 

 

20,401

 

 

 

9,087

 

 

45%

Selling and marketing

 

10,083

 

 

 

7,940

 

 

 

2,143

 

 

27%

 

10,161

 

 

 

9,859

 

 

 

302

 

 

3%

 

 

30,967

 

 

 

28,665

 

 

 

2,302

 

 

8%

General and administrative

 

21,802

 

 

 

25,775

 

 

 

(3,973

)

 

(15%)

 

17,498

 

 

 

26,266

 

 

 

(8,768

)

 

(33%)

 

 

57,293

 

 

 

82,281

 

 

 

(24,988

)

 

(30%)

Amortization of intangible assets

 

1,968

 

 

 

906

 

 

 

1,062

 

 

117%

 

1,957

 

 

 

2,006

 

 

 

(49

)

 

(2%)

 

 

5,887

 

 

 

4,487

 

 

 

1,400

 

 

31%

Restructuring costs

 

 

 

 

105

 

 

 

(105

)

 

(100%)

 

 

 

 

 

3,001

 

 

 

(3,001

)

 

(100%)

Total operating expenses

 

43,635

 

 

 

40,610

 

 

 

3,025

 

 

7%

 

39,630

 

 

 

45,743

 

 

 

(6,113

)

 

(13%)

 

 

123,635

 

 

 

138,835

 

 

 

(15,200

)

 

(11%)

Operating (loss) income

 

(24,824

)

 

 

201,933

 

 

 

(226,757

)

 

(112%)

Operating income (loss)

 

214

 

 

 

352

 

 

 

(138

)

 

(39%)

 

 

(44,408

)

 

 

215,079

 

 

 

(259,487

)

 

(121%)

Interest and other income, net

 

3,775

 

 

 

45

 

 

 

3,730

 

 

8,289%

 

6,646

 

 

 

1,405

 

 

 

5,241

 

 

373%

 

 

15,519

 

 

 

2,408

 

 

 

13,111

 

 

544%

(Loss) income before income taxes

 

(21,049

)

 

 

201,978

 

 

 

(223,027

)

 

(110%)

(Benefit from) provision for income taxes

 

(5,200

)

 

 

48,421

 

 

 

(53,621

)

 

(111%)

Income (loss) before income taxes

 

6,860

 

 

 

1,757

 

 

 

5,103

 

 

290%

 

 

(28,889

)

 

 

217,487

 

 

 

(246,376

)

 

(113%)

Provision for income taxes

 

20,326

 

 

 

414

 

 

 

19,912

 

 

4,810%

 

 

12,016

 

 

 

51,488

 

 

 

(39,472

)

 

(77%)

Net (loss) income from consolidated operations

 

(15,849

)

 

 

153,557

 

 

 

(169,406

)

 

(110%)

 

(13,466

)

 

 

1,343

 

 

 

(14,809

)

 

(1,103%)

 

 

(40,905

)

 

 

165,999

 

 

 

(206,904

)

 

(125%)

Net loss attributable to noncontrolling interests

 

509

 

 

 

422

 

 

 

87

 

 

21%

 

359

 

 

 

376

 

 

 

(17

)

 

(5%)

 

 

1,229

 

 

 

1,236

 

 

 

(7

)

 

(1%)

Net (loss) income attributable to Fulgent

$

(15,340

)

 

$

153,979

 

 

$

(169,319

)

 

(110%)

$

(13,107

)

 

$

1,719

 

 

$

(14,826

)

 

(862%)

 

$

(39,676

)

 

$

167,235

 

 

$

(206,911

)

 

(124%)

 

21


Revenue

Revenue decreased $254.1$21.0 million, or 79%20%, from $320.3$105.7 million in the first quarter ofthree months ended September 30, 2022 to $66.2$84.7 million in the first quarter ofthree months ended September 30, 2023, and decreased $332.6 million, or 60%, from $551.3 million in the nine months ended September 30, 2022 to $218.7 million in the nine months ended September 30, 2023. The decreasedecreases in revenue between periods were primarily due to decreased orders for our COVID-19 tests.

Revenue from non-U.S. sources increased $1.0$1.6 million, or 33%38%, from $3.1 million in the first quarter of 2022 to $4.1 million in the first quarter ofthree months ended September 30, 2022 to $5.7 million in the three months ended September 30, 2023, and increased $4.2 million, or 40%, from $10.5 million in nine months ended September 30, 2022 to $14.6 million in the nine months ended September 30, 2023. The increase in revenue from non-U.S. sources between periods were primarily due to increased sales of our traditional genetic testing services to customers in China through our joint venture in China.

After aggregating customers that are under common control or affiliation, noone customer contributed 10% or more14% and 11% of the Company’s revenue in the first quarter ofthree and nine months ended September 30, 2023, and onerespectively. A different customer contributed 27%13% and 21%, of the Company’s revenue in the first quarter of 2022.three and nine months ended September 30, 2022, respectively.

Cost of Revenue

Cost of revenue decreased $30.4$14.7 million, or 39%25%, from $77.7$59.6 million in the first quarter ofthree months ended September 30, 2022 to $47.4$44.8 million in the first quarter ofthree months ended September 30, 2023. The decrease was primarily due to decreases of $20.2$4.3 million in reagentsdepreciation expenses, $3.4 million in reagent and supply expense, $17.7expenses, $3.3 million in consulting and outside labor costs, $2.1 million$726,000 in payroll expenses, $553,000 in shipping expenses, and handling expense, $1.1 million$420,000 in external customer engagement platform expense related to the decreased tests delivered and orders for our COVID-19 tests, and $1.2$1.1 million in allocated facility expense.

Cost of revenue decreased $57.9 million, or 29%, from $197.4 million in the nine months ended September 30, 2022 to $139.5 million in the nine months ended September 30, 2023. The decrease was primarily due to decreases of $30.8 million in consulting and outside labor costs for production, $23.9 million in reagent and supply expenses, $9.3 million in depreciation expenses, $2.2 million in shipping expenses, $1.1 million in meals provided to production teams during pandemic and other travel expense, and $856,000 in external customer engagement platform expense related to the decreased tests delivered and orders for our COVID-19 tests, $1.6 million in allocated facility expense, $750,000 in change in gain or loss on disposal of fixed assets, $663,000 in office and computer expenses, and $334,000 in other state tax, and partially offset by an increase of $12.3$13.8 million in personnel costs including equity-based compensation expense duerelated to increased headcount.an entity acquired in the second quarter of 2022.

22


Our gross profit decreased $223.7$6.3 million, from $242.5$46.1 million in the first quarter ofthree months ended September 30, 2022 to $18.8$39.8 million in the first quarterthree months ended September 30, 2023. The decrease in gross profit was primarily due to the decrease in revenue from our COVID-19 tests. Our gross profit as a percentage of revenue, or gross margin, increased from 43.6% to 47.0% due to changes in product mix and revenue recognized for COVID-19 tests completed in prior periods.

Our gross profit decreased $274.7 million, from $353.9 million in the nine months ended September 30, 2022 to $79.2 million in the nine months ended September 30, 2023. The decrease in gross profit was primarily due to the decrease in revenue from our COVID-19 tests. Our gross profit as a percentage of revenue, or gross margin, decreased from 75.7%64.2% to 28.4%36.2% due to changes in product mix.

Research and Development

Research and development expenses increased $3.8$2.5 million, or 63%33%, from $6.0$7.5 million in the first quarter ofthree months ended September 30, 2022 to $9.8$10.0 million in the first quarter ofthree months ended September 30, 2023. The increase was primarily due to increases of $3.3$1.6 million in personnel costs including equity-based compensation expense duerelated to increased headcount and $418,000equity awards granted post the second quarter of 2022, and $584,000 in reagent and supply expenses related to increased reagent usage for research.

Research and development expenses increased $9.1 million, or 45%, from $20.4 million in the nine months ended September 30, 2022 to $29.5 million in the nine months ended September 30, 2023. The increase was primarily due to increases of $7.2 million in personnel costs including equity-based compensation expense related to increased headcount and equity awards granted post the second quarter of 2022, $681,000 in consulting and outside labor costs, and $611,000 in reagent and supply expenses related to continued development of our therapeutic products.increased reagent usage for research.

Selling and Marketing

Selling and marketing expenses increased $2.1were relatively consistent between periods at $10.2 million or 27% from $7.9and $9.9 million in the first quarter ofthree months ended September 30, 2023 and 2022, to $10.1respectively.

Selling and marketing expenses increased $2.3 million, or 8% from $28.7 million in the first quarter ofnine months ended September 30, 2022 to $31.0 million in the nine months ended September 30, 2023. The increase was primarily due to increases of $1.4$2.1 million in software expense, $611,000 in personnel costs including equity-based compensation expense dueand $1.2 million related to increased headcount,allocated facility expenses, and $520,000 in allocated overhead expenses, partially offset by a decrease of $922,000$2.0 million in consulting and outside labor costs.

General and Administrative

General and administrative expenses decreased $4.0$8.8 million, or 15%33%, from $25.8$26.3 million in the first quarter ofthree months ended September 30, 2022 to $21.8$17.5 million in the first quarter of 2023three months ended September 30, 2023. The decrease was primarily due to decreasesa decrease of $11.7$8.9 million in provisions for credit losses.

General and administrative expenses decreased $25.0 million, or 30%, from $82.3 million in the nine months ended September 30, 2022 to $57.3 million in the nine months ended September 30, 2023. The decrease was primarily due to decreases of $29.6 million in provision for credit losses, $1.8$5.2 million in acquisition related costs incurred in the prior period, $2.3 million in legal and professional fees, and $908,000$1.7 million in softwarelicenses and software licensing due to decreased testing volume,permits, partially offset by increases of $5.0$5.4 million in personnel costs including equity-based compensation expense duerelated to increased headcount, $2.1entity acquired in the second quarter of 2022 and equity awards granted post the second quarter of 2022, $4.5 million related to allocated facility expense, and $3.5 million in facility expenses, and $1.8 million in depreciation expense and $709,000 in business insurance expense.

Amortization of Intangible Assets

Amortization of intangible assets represents amortization expenses on the intangible assets arose from the business combinations in 2022 and 2021 and a patent purchased in 2021. Amortization expenses were $2.0 million and $906,000 in the first quarters ofthree months ended September 30, 2023 and 2022, respectively, and $5.9 million and $4.5 million in the nine months ended September 30, 2023 and 2022, respectively.

Restructuring Costs

Restructuring expenses represent one-time employee termination benefits provided to employees associated with an entity acquired by the Company who were involuntarily terminated in the prior period.

23


Interest and Other Income, net

Interest and other income, net, is primarily comprised of net interest income (expenses), which was $3.8$6.4 million and $(50,000)$1.5 million in the first quarters ofthree months ended September 30, 2023 and 2022, respectively, and $15.2 million and $2.3 million in the nine months ended September 30, 2023 and 2022, respectively. This interest income (expense) related to interest earned on various investments in marketable securities including realized and holding gain (loss) on marketable equity securities, net of interest expenses incurred for our notes payable and margin loan. The increase is primarily due to increases in interest rates on investments relative to the prior comparative periods.

22


(Benefit from) Provision for Income Taxes

(Benefit from) provisionProvision for income taxes income taxes was $(5.2)$20.3 million and $48.4$12.0 million for the first quarters ofthree and nine months ended September 30, 2023, respectively, and $414,000 and $51.5 million for the three and nine months ended September 30, 2022, respectively. The effective tax rate was 296% and 24% for the three months ended September 30, 2023 and 2022, respectively. The effective tax rate was (25%(42%) and 24% for the first quarters ofnine months ended September 30, 2023 and 2022, respectively. The change in the effective tax rate for the three and nine months ended September 30, 2023, relative to 2022, was due to the establishment, in the three months ended September 30, 2023, of a valuation allowance on the Company's net deferred tax assets. FASB ASC 740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred income tax assets will not be realized. The Company has evaluated the realizability of any of its deferred tax assets and has concluded that it is more likely than not that the Company may not realize benefit of its deferred tax assets, primarily as a result of operating losses in the nine months ended September 30, 2023, and, accordingly, has provided a full valuation allowance at September 30, 2023.

Net Loss Attributable to Noncontrolling Interest

Net loss attributable to noncontrolling interest represents net loss attributable to the minority shareholders from entities not wholly owned.

Liquidity and Capital Resources

Liquidity and Sources of Cash

We had $871.3$851.5 million and $852.9 million in cash, cash equivalents, and marketable securities as of March 31,September 30, 2023 and December 31, 2022, respectively. Our marketable securities primarily consist of U.S. government and U.S. agency debt securities, U.S. treasury bills, corporate bonds, municipal bonds, and Yankee debt securities as of March 31,September 30, 2023 and December 31, 2022.

Our primary uses of cash are to fund our operations and to fund strategic acquisitions as we continue to invest in and seek to grow our business. Cash used to fund operating expenses is impacted by the timing of our expense payments, as reflected in the changes in our outstanding accounts payable and accrued expenses.

We believe our existing cash, cash equivalent, and short-term marketable securities will be sufficient to meet our anticipated cash requirements for at least the next 12 months. Cash provided by operations significantly contributed to our ability to meet our liquidity needs, including paying for capital expenditures. However, cash provided by our operations fluctuates from period to period, which we expect may continue in the future. These fluctuations can occur because of a variety of factors, including, among others, factors relating to the demand for our tests, the amount and timing of sales, the prices we charge for our tests due to changes in product mix, customer mix, general price degradation for tests, or other factors, the rate and timing of our billing and collections cycles and the timing and amount of our commitments and other payments. Moreover, even if our liquidity expectations are correct, we may still seek to raise additional capital through securities offerings, credit facilities or other debt financings, asset sales or collaborations or licensing arrangements.

If we raise additional funds by issuing equity securities, our existing stockholders could experience substantial dilution. Additionally, any preferred stock we issue could provide for rights, preferences or privileges senior to those of our common stock, and our issuance of any additional equity securities, or the possibility of such an issuance, could cause the market price of our common stock to decline. The terms of any debt securities we issue or borrowings we incur, if available, could impose significant restrictions on our operations, such as limitations on our ability to incur additional debt or issue additional equity or other restrictions that could adversely affect our ability to conduct our business, and would result in increased fixed payment obligations. If we seek to sell assets or enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms or relinquish or license to a third party our rights to important or valuable technologies or tests we may otherwise seek to develop ourselves. Moreover, we may incur substantial costs in pursuing future capital, including investment banking, legal and accounting fees, printing and distribution expenses, and other similar costs. Additional funding may not be available to us when needed, on acceptable terms or at all. If we are not able to secure funding if and when needed and on reasonable terms, we may be forced to delay, reduce the scope

24


of, or eliminate one or more sales and marketing initiatives, research and development programs, or other growth plans or strategies. In addition, we may be forced to work with a partner on one or more aspects of our tests or market development programs, or initiatives, which could lower the economic value to us of these tests, programs or initiatives. Any such outcome could significantly harm our business, performance, and prospects.

Cash Flows

The following table summarizes our cash flows for each of the periods indicated:

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

(in thousands)

 

Net cash (used in) provided by operating activities

$

(7,907

)

 

$

188,411

 

Net cash (used in) provided by investing activities

$

(4,354

)

 

$

688

 

Net cash used in financing activities

$

(1,101

)

 

$

(934

)

23


 

Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

(in thousands)

 

Net cash provided by operating activities

$

12,070

 

 

$

220,313

 

Net cash provided by (used in) investing activities

$

14,628

 

 

$

(168,715

)

Net cash used in financing activities

$

(21,834

)

 

$

(47,548

)

Operating Activities

Cash used inprovided by operating activities in the first quarter ofnine months ended September 30, 2023 was $7.9$12.1 million. The difference between net loss and cash usedprovided in operating activities for the period was primarily due to the effects of $10.3$31.5 million in equity-based compensation expenses, $6.9$19.6 million in the depreciation and amortization, $11.0 million in deferred taxes, and $1.6$4.9 million in noncash lease expense, partially offset by $5.2negative impact of $4.3 million in deferred taxes.provisions for credit loss and $2.4 million in amortization of discount on marketable securities. Changes in operating assets and liabilities primarily consisted of decreases of $9.1 million in accrued liabilities and other current and non-current liabilities and $1.9$7.0 million in accounts payable related to the timing of payments, $1.5$4.8 million in operating and finance lease liabilities, and an increase of $1.6$2.9 million in other current and long-term assets, partially offset by a decrease of $9.3$7.6 million in trade accounts receivable due to the timing of collections.

Cash provided by operating activities in the first quarter ofnine months ended September 30, 2022 was $188.4$220.3 million. The difference between net income and cash provided by operating activities for the period was primarily due to the effects of $11.6$25.3 million in provision for credit losses, $5.6$22.9 million in depreciation and amortization, $22.6 million in equity-based compensation expenses, and $4.7$4.2 million in the depreciationamortization of premium of marketable securities, $3.3 million in noncash lease expense, $1.1 million in unrecognized tax benefits, and amortization. Changespartially offset by a negative impact of $4.9 million increased deferred tax assets. Cash used in operating assets and liabilitiesactivities decreased between periods primarily consisteddue to decreases of increases of $51.4 million in income tax payable and $2.1$32.3 million in accounts payable related to timing of payments, $12.9 million in accrued expenses and other liabilities, $3.3 million in operating and finance lease liabilities, and partially offset by decreases of $24.2 million in trade accounts receivable due to timing of paymentscollections and a decrease of $3.0$3.7 million in other current and long-term assets primarily related to reagents and supplies partially offset by an increase of $32.9 million in trade receivable due to timing of collections and a decrease of $8.2 million in accrued liabilities and other current and non-current liabilities primarily due to the payments for bonus accruals.prepaid expenses.

Investing Activities

Cash provided by investing activities in the nine months ended September 30, 2023 was $14.6 million, which primarily represents proceeds of $376.9 million from maturities of marketable securities, partially offset by $343.6 million for purchases of marketable securities and $19.1 million for purchases of fixed assets, including real estate.

Cash used in investing activities in the first quarter of 2023nine months ended September 30, 2022 was $4.4$168.7 million, which primarily related to $143.9$257.3 million on purchase of marketable securities and $2.0$137.8 million onpayment related to acquisition of Inform Diagnostics, $15.0 million purchase of preferred stock of a privately held company, purchases of $14.1 million of fixed assets, and $10.0 million contingent consideration payment made in current period related to a business acquisition in 2021, and partially offset by $141.4proceeds of $133.4 million from sale of marketable securities and $131.7 million related to maturities of marketable securities.

Cash provided by investing activities in the first quarter of 2022 was $688,000, which primarily related to $133.4 million related to sales of marketable securities and $27.8 million related to maturities of marketable securities, partially offset by purchases of $130.1 million of marketable securities, $15.0 million investment in private equity securities, $10.0 million contingent consideration payment related to the acquisition of Cytometry Specialists, Inc, and $5.4 million on purchases of fixed assets.

Financing Activities

Cash used in financing activities in the first quarter ofnine months ended September 30, 2023 was $1.1$21.8 million, which primarily related to $869,000$15.0 million repayment to the margin loan account, $2.4 million repayment to the notes payable, $2.2 million repurchase of common stock, and $1.6 million common stock withholding for employee tax obligations.

Cash used in financing activities in the first quarter ofnine months ended September 30, 2022 was $934,000,$47.5 million, which primarily related to $494,000$45.3 million repurchase of common stock and $1.5 million related to common stock withholding for employee tax obligations and $375,000 repayments of partial notes payable.obligations.

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Stock Repurchase Program

In March 2022, the Board authorized a $250.0 million stock repurchase program. The stock repurchase program has no expiration from the date of authorization. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions. The stock repurchase program has no expiration from the date of authorization.

During the first quarter ofthree and nine months ended September 30, 2023, we did not repurchase anyrepurchased 80,000 shares common stock at an aggregate cost of $2.2 million under ourthe stock repurchase program. During the three months ended September 30, 2022, we repurchased 780,000 shares of our common stock at an aggregate cost of $34.7 million, and during the nine months ended September 30, 2022, we repurchased 995,000 shares of our common stock at an aggregate cost of $45.3 million. As of March 31,September 30, 2023, a total of approximately $175.7$173.5 million remained available for future repurchases of our common stock under our stock repurchase program.

Critical Accounting Policies and Use of Estimates

There have been no material changes to our critical accounting policies or estimates from the information provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the 2022 Annual Report.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this report for information about recent accounting pronouncements.

24


Off-Balance Sheet Arrangements

We did not have during the periods presented, and do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our 2022 Annual Report.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31,September 30, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31,September 30, 2023.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control (as required by Rule 13a-15(b) under the Exchange Act) over the financial reporting during the first quarter ofthree months ended September 30, 2023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

26


Inherent Limitations on Disclosure Controls and Procedures and Internal Control over Financial Reporting

Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of these inherent limitations, our disclosure and internal controls may not prevent or detect all instances of fraud, misstatements or other control issues. In addition, projections of any evaluation of the effectiveness of disclosure or internal controls to future periods are subject to risks, including, among others, that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.

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PART II—OTHER INFORMATION

From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. As disclosed in Note 8, Debt, Commitments and Contingencies to the Condensed Consolidated Financial Statements, we are engaged in certain legal investigations, and the disclosure set forth in Note 8 relating to these certain legal matters is incorporated herein by reference.

The outcome of litigation is inherently uncertain, and there can be no assurances that favorable outcomesoutcome will be obtained.

Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, among other factors.

Item 1A. Risk Factors.

There have been no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the 2022 Annual Report.

Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds.Proceeds, and Issuer Purchases of Equity Securities.

Use of Proceeds from Registered Securities

To date, we have used $85.9$121.7 million of the net proceeds from sales of our common stock, of which, $4.5 million was used for contributions to FF Gene Biotech, prior to the FF Gene Biotech acquisition, and $81.4$101.4 million was used to fund the Company’s operations and a business combination.combination, and $15.8 million was used to pay off the investment margin loan. All other net proceeds from sales of our common stock are invested in investment-grade and interest-bearing securities, such as U.S. government and U.S. agency debt securities, corporate bonds, and municipal bonds. There has been no material change in the planned use of proceeds from the sales of our common stock from that described in the Prospectus.

Information on Share Repurchases

The Company did not repurchase anyrepurchased 80,000 shares common stock during the first quarterthree and nine months ended September 30, 2023. The number of 2023.shares of common stock repurchased by the Company and the average price paid per share are as follows:

Period

 

(a) Total Number of Shares Purchased

 

 

(b) Average Price Paid Per Share (1)

 

 

(c) Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs

 

 

(d) Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs

 

May 2022 (5/1/2022 - 5/31/2022)

 

 

30,000

 

 

$

49.56

 

 

 

30,000

 

 

$

248,515,000

 

June 2022 (6/1/2022 - 6/30/2022)

 

 

185,000

 

 

$

48.97

 

 

 

185,000

 

 

$

239,429,000

 

August 2022 (8/1/2022 - 8/31/2022)

 

 

247,000

 

 

$

47.68

 

 

 

247,000

 

 

$

227,657,000

 

September 2022 (9/1/2022 - 9/30/2022)

 

 

533,000

 

 

$

43.04

 

 

 

533,000

 

 

$

204,752,000

 

October 2022 (10/1/2022 - 10/31/2022)

 

 

244,000

 

 

$

37.33

 

 

 

244,000

 

 

$

195,661,000

 

November 2022 (11/1/2022 - 11/30/2022)

 

 

234,000

 

 

$

35.83

 

 

 

234,000

 

 

$

187,276,000

 

December 2022 (12/1/2022 - 12/31/2022)

 

 

337,000

 

 

$

34.32

 

 

 

337,000

 

 

$

175,718,000

 

September 2023 (9/1/2023-9/30/2023)

 

 

80,000

 

 

$

27.65

 

 

 

80,000

 

 

$

173,522,000

 

Total

 

 

1,890,000

 

 

 

 

 

 

1,890,000

 

 

 

 

(1) Includes commissions for the shares repurchased under the stock repurchase program.

Item 5. Other Information

Executive OfficerOn October 30, 2023, in accordance with Rule 10D-1 of the Exchange Act, the Board approved the Company’s Amended and Restated Incentive PlanCompensation Recoupment Policy, which allows the Company to recoup certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under federal securities laws. The Amended and Restated Incentive Compensation Recoupment Policy has been filed as Exhibit 10.1 of this Quarterly Report on Form 10-Q.

On May 2,October 30, 2023, the Compensation Committee of the Board (the “Compensation Committee”) approved the Company’s Amended and Restated Executive Officer Incentive Plan (the “2023“Amended and Restated Incentive Plan”). The 2023Amended and Restated Incentive Plan covers a performance period of January 1 through December 31 (the “Performance Year”) for each calendar year, effective January 1, 2023. The 2023amended the original Executive Officer Incentive Plan is designed to reward members ofpermit the executive management team for their contributionsadministrator to, in its discretion, make certain

28


payments in the achievementform of corporate profitability and other important performance targets. As further described in and subject to the terms of the 2023 Incentive Plan, Executive Officers will be eligible to receive annual incentive compensation based on corporate performance metrics. The Compensation Committee will administer the 2023 Incentive Plan.equity awards. The foregoing summary of the 2023Amended and Restated Incentive Plan does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the 2023Amended and Restated Incentive Plan, a copy of which is attached as Exhibit 10.310.2 to this CurrentQuarterly Report on Form 10-Q and incorporated herein by reference.

Item 6. Exhibits.

The information required by this Item 6 is set forth on the Exhibit Index that immediately precedes the signature page to this report and is incorporated herein by reference.

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EXHIBIT INDEX

EXHIBIT INDEX

 

 

 

Incorporated by Reference

Exhibit No.

Exhibit Title

Filed with this Form 10-Q

Form

 

Form No.

 

Date Filed

 

 

 

 

 

 

 

 

3.1

Certificate of Incorporation of the registrant, dated May 13, 2016.

 

10-Q

 

001-37894

 

8/14/2017

 

 

 

 

 

 

 

 

3.1.1

Certificate of Amendment to Certificate of Incorporation of the registrant, dated August 2, 2016.

 

10-Q

 

001-37894

 

8/14/2017

 

 

 

 

 

 

 

 

3.1.2

Certificate of Amendment to Certificate of Incorporation of the registrant, dated May 17, 2017.

 

10-Q

 

001-37894

 

8/14/2017

 

 

 

 

 

 

 

 

3.2

Amended and Restated Bylaws of the registrant.

 

S-1/A10-Q

 

333-213469001-37894

 

9/26/20168/4/2023

 

 

 

 

 

 

 

 

10.1*^10.1^#

Amended and Restated Non-Employee DirectorIncentive Compensation Recoupment Policy dated as of February 23, 2023.

X

 

 

 

 

 

 

 

 

 

 

 

 

 

10.2

Commercial Lease Addendum (II) dated January 6, 2023, by and between Fulgent Therapeutics LLC and E&E Plaza LLC

8-K

001-37894

1/12/2023

10.3*^10.2^#

Amended and Restated Executive Officer Incentive Plan.Plan

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.131.1*

Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.231.2*

Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1*

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH

Inline XBRL Taxonomy Extension Schema Document

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

X

 

 

 

 

 

 

 

 

 

 

 

 

 

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

X

 

 

 

 

 

 

* Furnished herewith.

^ Management compensation plan or arrangement.

# Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplementally a copy

of any omitted exhibit or schedule upon request by the SEC.

2730


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 FULGENT GENETICS, INC.

Date: May 5,November 3, 2023

By:

/s/ Ming Hsieh

Ming Hsieh

Chief Executive Officer

(principal executive officer)

 

Date: May 5,November 3, 2023

By:

/s/ Paul Kim

Paul Kim

Chief Financial Officer

(principal financial and accounting officer)

 

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