Fulgent Genetics Inc

Previous wording

We believe the factors that will affect our ability to grow these revenue streams are 1) the average price point we offer and the reimbursement rate from third-party payors; 2) the concentration of our payor base; 3) the competitive advantage we have due to our broad and flexible test menu, detection rate, and turnaround times; and 4) growth in size of an addressable market. Estimated collection amounts from third-party payors are subject to the complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs. Because our proprietary technology platform allows for rapid scaling of a broad, flexible testing menu, we can offer our customers more scalable and affordable testing. Going forward, we will strive to maintain this competitive advantage and emphasize this in our marketing efforts to grow our testing revenue.

Current wording

We believe the factors that will affect our ability to grow these revenue streams are 1) the average price point we offer and the reimbursement rate from third-party payors; 2) the concentration of our payor base; 3) the competitive advantage we have due to our broad and flexible test menu, detection rate, and turnaround times; and 4) growth in size of an addressable market. Estimated collection amounts from third-party payors are subject to the complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs.

Previous wording

Our customer base includes insurance, institutional, and individual payors. In some periods, our revenue is concentrated on a smaller number of customers. For the laboratory services business, aggregating customers that are under common control, one customer comprised $12.6 million or 20% of our revenue in the three months ended March 31, 2024. No customer contributed 10% or more of the Company’s revenue in the three months ended March 31, 2023. To reduce this revenue risk, we will focus on increasing the number of customers and thereby reducing the concentration.

Current wording

Our customer base includes insurance, institutional, and individual payors. In some periods, our revenue is concentrated on a smaller number of customers. For the laboratory services business, aggregating customers that are under common control, one customer comprised of $16.9 million or 24% of total revenue in the three months ended June 30, 2024, and contributed $29.6 million or 22% of total revenue in the six months ended June 30, 2024. The same customer contributed $9.1 million or 13% of total revenue in the three months ended June 30, 2023, and no customer contributed more than 10% of the Company’s revenue in the six months ended June 30, 2023. To reduce this revenue concentration risk, we continue to focus on increasing the number of customers and thereby reducing the concentration.

Previous wording

Revenue from non-U.S. sources increased $2.5 million, or 62%, from $4.1 million in the three months ended March 31, 2023 to $6.6 million in the three months ended March 31, 2024. 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 Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech.

Current wording

Revenue from non-U.S. sources increased $2.0 million or 42%, from $4.8 million in the three months ended June 30, 2023 to $6.8 million in the three months ended June 30, 2024. Revenue from non-U.S. sources increased $4.6 million, or 51%, from $8.9 million in the six months ended June 30, 2023, to $13.5 million in the six months ended June 30, 2024. The increase in revenue from non-U.S. sources between periods were primarily due to new foreign customers and increased sales of our testing services to some of our existing non-U.S. customers.

Previous wording

Our consolidated cost of revenue decreased $5.0 million, or 11%, from $47.4 million in the three months ended March 31, 2023 to $42.4 million in the three months ended March 31, 2024. The decrease was primarily due to decreases of $2.1 million consulting and outside labor costs, $921,000 in personnel costs including equity-based compensation, $615,000 in facility expenses, $591,000 in shipping and handling expenses, and $575,000 in reagents and supply expenses related to cessation of COVID-19 testing operations and closure of a laboratory.

Current wording

Our consolidated cost of revenue decreased $7.7 million or 8%, from $94.6 million in the six months ended June 30, 2023 to $86.9 million in the six months ended June 30, 2024. The decrease in consolidated cost of revenue was due to decreases of $4.1 million in consulting and outside labor costs, $1.4 million in shipping and handling expenses, $1.3 million in software expenses, and $0.7 million in reagents and supply expenses, related to the cessation of COVID-19 testing operations, closure of a laboratory, and efforts of optimizing cost structures mentioned above.

Previous wording

Our consolidated cost of revenues as a percentage of revenue decreased from 71.6% to 65.7%. Our gross profit increased $3.3 million, from $18.8 million in the three months ended March 31, 2023 to $22.1 million in the three months ended March 31, 2024. Our gross profit as a percentage of revenue, or gross margin, increased from 28.4% to 34.3%. The changes were primarily due to product mix.

Current wording

Our consolidated cost of revenues as a percentage of revenue decreased from 70% in the three months ended June 30, 2023 to 63% in the three months ended June 30, 2024. Our consolidated cost of revenues as a percentage of revenue decreased from 71% in the six months ended June 30, 2023 to 64% in the six months ended June 30, 2024.

Previous wording

Research and development expenses for the laboratory services business were mainly for developing our technology and future testing and testing services. The expenses were flat for the three months ended March 31, 2024 and 2023.

Current wording

Research and development expenses for the laboratory services business were mainly for developing our technology and testing services. The research and development expenses were flat for both periods.

Previous wording

Research and development expenses for the therapeutic development business were primarily related to the development of FID-007. The expenses increased $1.6 million, or 66%, from $2.5 million in the three months ended March 31, 2023 to $4.1 million in the three months ended March 31, 2024. The change was primarily due to increased expenses related to a drug study with our contract research organizations. We anticipate research and development expenditures for this segment to increase as we expect to begin enrollment for a phase 2 study of FID-007 in the second quarter of 2024.

Current wording

Research and development expenses for the therapeutic development business were primarily related to the development of FID-007. The expenses increased $3.5 million or 129% from $2.7 million in the three months ended June 30, 2023 to $6.2 million in the three months ended June 30, 2024, and increased $5.1 million or 99% from $5.2 million in the six months ended June 30, 2023 to $10.3 million in the six months ended June 30, 2024. The increase was primarily due to increased expenses related to a drug study with our contract research organizations. We anticipate research and development expenditures for this segment to continue to increase as we have begun enrollment for the phase 2 study of FID-007 in the second quarter of 2024.

Previous wording

Our consolidated general and administrative expenses decreased $313,000, or 1%, from $21.8 million in the three months ended March 31, 2023 to $21.5 million in the three months ended March 31, 2024 due to decreases of $2.4 million in provisions for credit losses and $881,000 in business insurance expense, partially offset by increases of $2.4 million in personnel costs including equity-based compensation expense and $708,000 in facility expenses.

Current wording

Our consolidated general and administrative expenses increased $3.3 million or 19%, from $18.0 million in the three months ended June 30, 2023 to $21.3 million in the three months ended June 30, 2024. The increase in consolidated general and administrative expenses was due to increases of $2.6 million in personnel costs including equity-based compensation expenses, $0.7 million in legal fees, and $0.2 million in provision for credit losses, partially offset by a decrease of $0.4 million in business insurance.

Previous wording

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 for each of the three months ended March 31, 2024 and 2023.

Current wording

Amortization of intangible assets represents amortization expenses on the intangible assets that arose from the business combinations in prior years. The Company did not have any new business combinations in the current period.

Previous wording

Interest and other income, net, is primarily comprised of interest income, net, which was $7.6 million and $3.8 million in the three months ended March 31, 2024 and 2023, respectively. This interest income, net, related to interest earned on various investments in marketable securities including realized gain or loss on sale of marketable securities, net of interest expenses incurred for our notes payable. The increase in interest income, net, was primarily due to increased interest rates on marketable securities relative to the prior comparative period.

Current wording

Interest and other income, net, is primarily comprised of net interest income (expenses), which was $7.7 million and $15.3 million in three and six months ended June 30, 2024, respectively, and $5.0 million and $8.8 million for the three and six months ended June 30, 2023, respectively. This interest income, net, related to interest earned on various investments in marketable securities including realized gain or loss on sale of marketable securities, net of interest expenses incurred for our notes payable. The increase in interest income, net, was primarily due to increased interest rates on marketable securities relative to the prior comparative period.

Previous wording

Benefit from income taxes was $327,000 and $5.2 million for the three months ended March 31, 2024 and 2023, respectively. The effective tax rate was 2% and 25% for the three months ended March 31, 2024 and 2023, respectively. The change in the effective tax rate compared to prior period is due to the valuation allowance in the current period that precludes us from recognizing the benefit from our net operating losses.

Current wording

Benefit from income taxes was $2.1 million and $2.5 million for the three and six months ended June 30, 2024, respectively, compared with $3.1 million and $8.3 million for the three and six months ended June 30, 2023, respectively. The effective tax rates were 19% and 10% for the three and six months ended June 30, 2024, respectively, compared to 21% and 23% for the three and six months ended June 30, 2023. The change in the effective tax rate compared to prior period is due to the valuation allowance in the current period that precludes us from recognizing the benefit from our net operating losses.

Previous wording

We had $846.2 million and $847.7 million in cash, cash equivalents, and marketable securities as of March 31, 2024 and December 31, 2023, 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, 2024 and December 31, 2023.

Current wording

We had $837.9 million and $847.7 million in cash, cash equivalents, and marketable securities as of June 30, 2024 and December 31, 2023, 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.

Previous wording

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 has significantly contributed to our ability to meet our liquidity needs, including paying for capital expenditures; however, cash provided by our operations has in the past experienced fluctuations 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.

Current wording

We believe our existing cash, cash equivalents, 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 has significantly contributed to our ability to meet our liquidity needs, including paying for capital expenditures; however, cash provided by our operations has in the past experienced fluctuations 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, seasonality, 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.

Previous wording

During the three months ended March 31, 2024, our operations provided $7.3 million of cash, as compared to $7.9 million used in the three months ended March 31, 2023. The increase in cash provided from operating activities in the three months ended March 31, 2024, as compared with the corresponding period in 2023 was primarily due to the timing of cash receipts from customers and cash payments for operating expenses. We expect to incur more operating expenses and use more cash in operating activities in the coming year as a result of our planned and ongoing clinical trials for FID-007 and as we continue to invest resources to grow our laboratory services business.

Current wording

During the six months ended June 30, 2024, our operations provided $11.6 million of cash, as compared to $1.8 million provided in the six months ended June 30, 2023. The increase in cash provided from operating activities in the six months ended June 30, 2024, as compared with the corresponding period in 2023 was primarily due to the timing of cash receipts from customers and cash payments for operating expenses. We expect to incur more operating expenses and use more cash in operating activities in the coming quarters as a result of our planned and ongoing clinical trials for FID-007 and as we continue to invest resources to grow our laboratory services business.

Previous wording

Cash used in investing activities in the three months ended March 31, 2023, was $4.4 million, which primarily related to $143.9 million on purchase of marketable securities and $2.0 million on purchases of fixed assets, partially offset by $141.4 million related to maturities of marketable securities.

Current wording

Cash used in investing activities in the six months ended June 30, 2023 was $5.5 million, which primarily related to $250.5 million on purchases of marketable securities and $14.2 million on purchases of fixed assets, including real estate, partially offset by $258.8 million related to maturities of marketable securities.

Previous wording

Cash used in financing activities in the three months ended March 31, 2024, was $2.8 million, which primarily related to $1.7 million common stock withholding for employee tax obligations and $765,000 for repayment of notes payable.

Current wording

Cash used in financing activities in the six months ended June 30, 2024 was $4.0 million, which primarily related to $2.2 million common stock withholding for employee tax obligations, $1.2 million for repayment of the notes payable, and $0.2 million for repurchase of common stock.

Previous wording

Cash used in financing activities in the three months ended March 31, 2023, was $1.1 million, which primarily related to $869,000 common stock withholding for employee tax obligations.

Current wording

Cash used in financing activities in the six months ended June 30, 2023 was $17.4 million, which primarily related to $15.0 million repayment to the margin loan account and $1.1 million common stock withholding for employee tax obligations.

Previous wording

In March 2022, our Board of Directors 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, we may repurchase shares from time to time in the open market or in privately negotiated transactions.

Current wording

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.

Previous wording

During the three months ended March 31, 2024, we repurchased 10,000 shares of our common stock under our stock repurchase program at an aggregate cost of $225,000 under the stock repurchase program. We did not repurchase any common stock under our stock repurchase program during the three months ended March 31, 2023. As of March 31, 2024, a total of approximately $150.5 million remained available for future repurchases of our common stock under our stock repurchase program.

Current wording

During the three and six months ended June 30, 2024, we repurchased zero and 10,000 shares of our common stock, respectively, at an aggregate cost of $0.2 million, under the stock repurchase program. During the three and six months ended June 30, 2023, we did not repurchase any shares of our common stock. As of June 30, 2024, a total of approximately $150.5 million remained available for future repurchases of its common stock under the stock repurchase program.