Fulgent Genetics Inc

Previous wording

We are a technology-based company with a well-established laboratory services business and a therapeutic development business. Our laboratory services business—to which we formerly referred as our clinical diagnostic business, includes technical laboratory services and professional interpretation of laboratory results by licensed physicians. 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.

Current wording

We are a technology-based company with a well-established laboratory services business and a therapeutic development business. Our laboratory services business includes technical laboratory and testing services and professional interpretation of laboratory results by licensed physicians. 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 PK profile of new and existing cancer drugs.

Previous wording

We recorded revenue and net (loss) from operations of $289.2 million and ($167.8 million), respectively, in 2023, compared to revenue and net income from operations of $619.0 million and $143.4 million, respectively, in 2022.

Current wording

We recorded revenue and net (loss) from operations of $283.5 million and ($42.7) million, respectively, in 2024, compared to revenue and net (loss) from operations of $289.2 million and ($167.8) million, respectively, in 2023.

Previous wording

We offer our tests at different price points, and we incur different amounts and types of costs, depending on the nature and level of complexity and customization of the test and the specific terms we have negotiated for the tests, which can vary from customer to customer. As a result, the mix of tests delivered in any period, and the customers that order these tests, impacts our financial results for the period.

Current wording

We offer our tests and testing services at different price points, and we incur different amounts and types of costs, depending on the nature and level of complexity and customization of the test and the specific terms we have negotiated for the tests and testing services, which can vary from customer to customer. As a result, the mix of tests delivered in any period, and the customers that order these tests, impacts our financial results for the period.

Previous wording

We currently classify our customers into three payor types: (i) Insurance, (ii) Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations or (iii) Patients who pay directly. Typically, we bill our Institutional customers for our tests, and they are responsible for paying us directly and billing their patients separately or obtaining reimbursement from third-party payors in connection with a patient’s diagnosis related group. A small percentage of our customers are patients, who elect to pay for tests themselves with out-of-pocket payments after their physicians have ordered our tests.

Current wording

We currently classify our customers into three payor types: (i) Insurance, (ii) Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities, and large corporations or (iii) Patients who pay directly. Typically, we bill our Institutional customers for our tests, and they are responsible for paying us directly and billing their patients separately or obtaining reimbursement from insurance payors in connection with a patient’s diagnosis related group. A small percentage of our customers are patients, who elect to pay for tests themselves with out-of-pocket payments after their physicians have ordered our tests.

Previous wording

We are making efforts to diversify our customer market, including building relationships with hospitals and affiliated specialties related to our service offerings. We are also pursuing relationships with payors, including Medicare, some state Medicaid programs, and commercial payors, in an effort to obtain coverage and reimbursement for our tests to make them accessible to more individual physicians. Generally, when we establish these new customer relationships, we agree with the applicable payor, laboratory, or other customer to provide certain of our tests at negotiated rates, but, subject to limited exceptions, most of these relationships do not obligate any party to order our tests at any agreed volume or frequency or at all. Further, any relationships we may develop with any government agencies are subject to unique risks associated with government contracts, including cancellation if adequate appropriations for subsequent performance periods are not made and modification or termination at the government’s convenience without prior notice. These efforts may not lead to meaningful or any increases in our customer base and may not improve our ability to achieve or sustain profitability.

Current wording

We continue to make efforts to diversify our customer market, including building relationships with hospitals and affiliated specialties related to our service offerings. We are also pursuing relationships with payors, including Medicare, some state Medicaid programs, and commercial payors, in an effort to obtain coverage and reimbursement for our tests to make them accessible to more individual physicians. Generally, when we establish these new customer relationships, we agree with the applicable payor, laboratory, or other customer to provide certain of our tests at negotiated rates, but, subject to limited exceptions, most of these relationships do not obligate any party to order our tests at any agreed volume or frequency or at all. Further, any relationships we may or have developed with any government agencies are subject to unique risks associated with government contracts, including cancellation if adequate appropriations for subsequent performance periods are not made and modification or termination at the government’s convenience without prior notice. These efforts may not lead to meaningful or any increases in our customer base and may not improve our ability to achieve or sustain profitability.

Previous wording

Ability to Maintain Low Internal Costs

Current wording

Ability to Maintain Low Internal Costs and Inflation

Previous wording

Much of our revenue depends on receiving reimbursement for our tests from third-party payors, including our Insurance and Institutional customers. These payors have complicated rules and procedures regarding submissions for reimbursement and their reimbursement practices and procedures may vary from period to period. Reimbursed amounts are often subject to audit and, and our ability to collect and retain reimbursement from these payors may vary from period to period. If we are unable to obtain or retain reimbursement during any period, our rate of reimbursement is lower than expected or if reimbursement is delayed, our results of operations may be correspondingly affected and fluctuate significantly from period to period. As part of our business plan for future growth, we intend to pursue coverage and reimbursement from third-party payors at a level adequate for us to again achieve and maintain profitability. However, we cannot predict whether, under what circumstances, or at what payment levels payors will cover and reimburse for our tests, and even if we are successful, we believe it could take several years to achieve coverage and adequate contracted reimbursement with third-party payors. To date, we have contracted directly with national health insurance companies to become an in-network provider and enrolled as a supplier with the Medicare program and some state Medicaid programs, which means that we have agreed with these payors to provide certain of our tests at negotiated rates. Although this does not guarantee that we will receive reimbursement for our tests from these or any other payors at adequate levels, we believe our low cost could enhance our ability to compete effectively in the third-party payor market and our flexibility in establishing relationships with additional third-party payors in the future. Our level of success in obtaining and maintaining adequate coverage and reimbursement from third-party payors for our testing services will, we believe, be a key factor in the rate and level of growth of our business over the long term.

Current wording

Much of our revenue depends on receiving reimbursement for our tests from insurance payors, including our Insurance and Institutional customers. These payors have complicated rules and procedures regarding submissions for reimbursement and their reimbursement practices and procedures may vary from period to period. Reimbursed amounts are often subject to audit, and our ability to collect and retain reimbursement from these payors may vary from period to period. If we are unable to obtain or retain reimbursement during any period, our rate of reimbursement is lower than expected or if reimbursement is delayed, our results of operations may be correspondingly affected and fluctuate significantly from period to period. As part of our business plan for future growth, we intend to pursue coverage and reimbursement from insurance payors at a level adequate for us to again achieve and maintain profitability. However, we cannot predict whether, under what circumstances, or at what payment levels payors will cover and reimburse for our tests, and even if we are successful, we believe it could take several years to achieve coverage and adequate contracted reimbursement with insurance payors. To date, we have contracted directly with national health insurance companies to become an in-network provider and enrolled as a supplier with the Medicare program and some state Medicaid programs, which means that we have agreed with these payors to provide certain of our tests at negotiated rates. Although this does not guarantee that we will receive reimbursement for our tests from these or any other payors at adequate levels, we believe our low cost could enhance our ability to compete effectively in the insurance payor market and our flexibility in establishing relationships with additional insurance payors in the future. Our level of success in obtaining and maintaining adequate coverage and reimbursement from insurance payors for our testing services will, we believe, be a key factor in the rate and level of growth of our business over the long term.

Previous wording

Our operating expenses are classified into five categories: research and development; selling and marketing; general and administrative; amortization of intangible assets; and restructuring costs if any. For each category except for amortization of intangible assets, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and equity-based compensation expenses.

Current wording

Our operating expenses are classified into five categories: research and development; selling and marketing; general and administrative; amortization of intangible assets; and goodwill impairment loss, if any. For each category except for amortization of intangible assets and goodwill impairment loss, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and equity-based compensation expenses.

Previous wording

Research and development expenses represent costs incurred to develop our technology and future tests and treatments. These costs consist of:

Current wording

Research and development expenses represent costs incurred to develop our technology and future tests and treatments and our drug candidates. These costs consist of:

Previous wording

We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses will continue to increase in absolute dollars, as we expect to continue to invest in research and development activities and continue to innovate and expand the application of our platform. Furthermore, we expect our research and development expenses for our therapeutic development segment to increase as we incur incremental expenses associated with our drug candidates that are currently under development and in clinical trials. Drug candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, we expect to incur significant research and development expenses in connection with our initiation of Phase 2 trials for FID-007.

Current wording

We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses will continue to increase in absolute dollars, as we expect to continue to invest in research and development activities and continue to innovate and expand the application of our platform. Furthermore, we expect our research and development expenses for our therapeutic development segment to increase as we incur incremental expenses associated with our drug candidates that are currently under development and in clinical trials. Drug candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, we expect to incur significant research and development expenses in connection with our Phase 2 trials for FID-007 and the initiation of clinical trials for FID-022.

Previous wording

Selling and marketing expenses consist of personnel costs, customer service expenses, direct marketing expenses, educational and promotional expenses, market research and analysis and allocated overhead expenses, including rent and utilities. We expense all selling and marketing costs as incurred. We expect our selling and marketing expenses will continue to increase in absolute dollars, primarily driven by our increased investment in sales and marketing in recent periods, including developing and expanding our sales team, creating and implementing new sales and marketing strategies and increasing the overall scope of our marketing efforts.

Current wording

Selling and marketing expenses consist of personnel costs, customer service expenses, direct marketing expenses, educational and promotional expenses, market research and analysis and allocated overhead expenses, including rent and utilities. We expense all selling and marketing costs as incurred. We expect our selling and marketing expenses will increase in absolute dollars, primarily driven by our increased investment in sales and marketing, including developing and expanding our sales team, creating and implementing new sales and marketing strategies and increasing the overall scope of our marketing efforts.

Previous wording

General and administrative expenses include executive, finance, accounting, legal and human resources functions. These expenses consist of personnel costs, audit and legal expenses, consulting costs and allocated overhead expenses, including rent and utilities. We expense all general and administrative costs as incurred. We expect our general and administrative expenses will continue to increase in absolute dollars as we seek to continue to scale our operations. We also expect to continue to incur general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, and the Nasdaq Stock Market, additional insurance expenses, investor relations activities and other administrative and professional services.

Current wording

General and administrative expenses include executive, finance, accounting, legal and human resources functions. These expenses consist of personnel costs, audit and legal expenses, consulting costs and allocated overhead expenses, including rent and utilities. We expense all general and administrative costs as incurred. We expect our general and administrative expenses will continue to increase in absolute dollars as we seek to continue to scale our operations. We also expect to continue to incur general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, and Nasdaq, additional insurance expenses, investor relations activities and other administrative and professional services.

Previous wording

Provision for income taxes consists of U.S. federal and state income taxes. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences, operating losses and tax credit carryforwards. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Current wording

(Benefit from) provision for income taxes consists of U.S. federal and state income taxes. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences, operating losses and tax credit carryforwards. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Previous wording

The factors that most significantly impact our effective tax rate include the levels of net earnings and certain deductions, including those related to equity-based compensation, the effect of state income taxes, return to provision adjustments, and foreign tax rate differential. We expect that these factors could cause our consolidated effective tax rate to differ significantly from the U.S. federal income tax rate in future periods.

Current wording

The factors that most significantly impact our effective tax rate include the levels of net earnings and certain deductions, including those related to equity-based compensation, tax credits, the reclassification of stranded tax effects from other comprehensive income, and the effect of state income taxes. We expect that these factors could cause our consolidated effective tax rate to differ significantly from the U.S. federal income tax rate in future periods.

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 repaid scaling of a broad, flexible testing menu, we can offer our customers more scalable and affordable testing. In recent years, variation in our revenue has primarily been driven by the volume of tests we deliver, particularly the volume of our COVID-19 tests that we delivered during these periods. 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 insurance 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 insurance 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 repaid 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.

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 segment, aggregating customers that are under common control, one customer comprised $35.7 million or 12% of our revenue in 2023, and a different customer comprised $115.6 million or 19% and $260.2 million or 26% of our revenue in 2022 and 2021, respectively. 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 segment, aggregating customers that are under common control, one customer comprised $62.6 million or 22% of our revenue in 2024 and $35.7 million or 12% of our revenue in 2023. To reduce this revenue risk, we will focus on increasing the number of customers and thereby reducing the concentration.

Previous wording

Revenue from non-U.S. sources increased by $4.4 million, or 28%, from $15.8 million in 2022 to $20.2 million in 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, which contributed $11.4 million in total revenue in 2023.

Current wording

Revenue from non-U.S. sources increased by $4.1 million, or 20%, from $20.2 million in 2023 to $24.3 million in 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 our joint venture, which contributed $11.8 million in total revenue in 2024.

Previous wording

Our consolidated cost of revenue decreased by $67.3 million, or 27%, from $252.1 million in 2022 to $184.8 million in 2023. The decrease was primarily due to decreases of $32.1 million in consulting and outside labor costs for production, $25.9 million in reagent and supply expenses, $12.3 million in depreciation expenses, $5.3 million in shipping expenses, and $1.2 million in travel and meals expense and $2.9 million in facility expense, all related to decreased COVID-19 testing, and partially offset by an increase of $15.4 million in personnel costs, including equity-based compensation expense, due to an additional four months of costs in 2023 compared to 2022 as Inform Diagnostics was acquired at the end of April 2022.

Current wording

Our consolidated cost of revenue decreased by $8.5 million, or 5%, from $184.8 million in 2023 to $176.3 million in 2024. The decrease was primarily due to decreases of $6.7 million in consulting and outside labor costs for production, $1.7 million in software and software licensing expenses, $1.4 million in personnel costs, including equity-based compensation, $0.8 million in shipping expenses, and $0.2 million in dues and subscriptions expense, related to efforts of optimizing cost structures including bringing certain operations in house, consolidating laboratory operations, and the cessation of our COVID-19 testing operations, and partially offset by an increase of $1.8 million in reagent and supply costs and $0.5 million in depreciation expenses.

Previous wording

Our consolidated cost of revenues as a percentage of revenue increased from 40.7% to 63.9%. Our gross profit decreased by $262.4 million, or 72%, from $366.9 million in 2022 to $104.5 million in 2023. Our gross profit as a percentage of revenue, or gross margin, decreased from 59.3% to 36.1%. The changes were primarily due to the decrease in revenue from our COVID-19 testing, which had a higher gross margin, and an additional four months of costs in 2023 from Inform Diagnostics.

Current wording

Our consolidated cost of revenues as a percentage of revenue decreased from 63.9% to 62.2%. Our gross profit increased by $2.8 million, or 3%, from $104.5 million in 2023 to $107.2 million in 2024. Our gross profit as a percentage of revenue, or gross margin, increased from 36.1% to 37.8%. This is driven by the efforts of optimizing cost structures as discussed above.

Previous wording

Research and development expenses for the laboratory services segment were mainly for developing our technology and future testing and testing services. The expenses of $29.7 million in 2023 primarily consisted of $25.5 million in personnel expenses, including bonuses and equity-based compensation, $1.1 million in reagent and supply expense, $1.1 million in facility expenses, $698,000 in depreciation expense, and $400,000 in software and licensing. The expenses of $28.2 million in 2022 primarily consisted of $23.4 million in personnel expenses, including bonuses and equity-based compensation, $2.2 million in reagent and supply expense, $785,000 in depreciation expense, and $587,000 in consulting and outside labor costs.

Current wording

In 2024, the research and development expenses primarily consisted of $25.3 million in personnel expenses, including bonuses and equity-based compensation, $1.4 million in reagent and supply costs, $0.6 million in facility expenses, $0.4 million in depreciation expense, and $0.4 million in software and licensing fees. The 2023 expenses primarily consisted of $25.5 million in personnel expenses, including bonuses and equity-based compensation, $1.4 million in reagent and supply costs, $1.1 million in facility expenses, $0.7 million in depreciation expense, and $0.4 million in software and licensing fees.

Previous wording

Our consolidated general and administrative expenses decreased by $22.1 million, or 20%, from $111.1 million in 2022 to $89.0 million in 2023. The decrease was primarily due to decreases of $33.5 million in provision for credit losses due to subsequent collections from customers who were previously reserved, $6.2 million in acquisition related to business combinations in 2022, $2.6 million in one-time license and permit expense incurred by Inform Diagnostics, partially offset by increases of $6.6 million in personnel costs including equity-based compensation expense, $6.1 million in facility expense, and $3.6 million in depreciation expense, due to an additional four months of costs in 2023 compared to 2022 as Inform Diagnostics was acquired at the end of April 2022, and $3.0 million in legal and professional fees due to legal liabilities accrued in connection with our voluntary disclosure process as described in Note 8, Debt, Commitments and Contingencies to the Consolidated Financial Statements, and $1.5 million in accounting expense as the entities acquired in 2022 and 2021 were scoped in for financial statement and internal control audit and reviews.

Current wording

Our consolidated general and administrative expenses decreased by $0.9 million, or 1%, from $89.0 million in 2023 to $88.1 million in 2024. The decrease was primarily due to decreases of $10.1 million in legal and professional fees related to a voluntary disclosure, see Note 8, Debt, Commitments and Contingencies, of our consolidated financial statements included in this report, $1.6 million in insurance expenses, $0.8 million in provision for credit losses due to subsequent collections from customers who were previously reserved, and $0.7 million in depreciation expenses and partially offset by increases of $11.4 million in personnel costs, including equity-based compensation, and $0.8 million in software and software licensing fees.

Previous wording

Our consolidated amortization of intangible assets represents amortization expenses on the intangible assets that arose from the business combinations in 2022 and 2021 and a patent purchased in 2021. The increase in amortization of intangible assets was primarily due to additions in intangible assets from business combinations in 2022.

Current wording

Our consolidated amortization of intangible assets represents amortization expenses on the intangible assets that arose from the business combinations in 2022 and 2021, and a patent purchased in 2021.

Previous wording

Goodwill impairment loss for 2023 was comprised of a full goodwill impairment loss of $120.2 million for the Laboratory Service reporting unit. There was no goodwill impairment loss for the year ended December 31, 2022. The full impairment was driven by a sustained decline in our stock price and market capitalization. There was no impairment loss for the therapeutic development unit for the years ended December 31, 2023 and 2022. See Note 17, Goodwill and Intangible Assets, for more details.

Current wording

Goodwill impairment loss for 2023 was comprised of a full goodwill impairment loss of $120.2 million for the laboratory services reporting unit. There was no goodwill impairment loss for the year ended December 31, 2024. The full impairment was driven by a sustained decline in our stock price and market capitalization. There was no impairment loss for the therapeutic development unit for the years ended December 31, 2024 and 2023. See Note 17, Goodwill and Intangible Assets, for more details.

Previous wording

Interest and other income, net is primarily comprised of net interest income, which was $21.1 million and $5.3 million for 2023 and 2022, respectively. This interest income 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 on our notes payable and a margin loan.

Current wording

Other income, net, is primarily comprised of interest income, which was $31.3 million and $21.6 million for 2024 and 2023, respectively, and impairment of available-for-sale debt securities of $10.1 million in 2024. This interest income included interest earned on marketable securities and realized gain or loss on sale of marketable securities. The increase in interest income was primarily due to increased interest rates on marketable securities relative to the prior comparative period.

Previous wording

We had $847.7 million and $852.9 million in cash, cash equivalents and marketable securities as of December 31, 2023 and 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 December 31, 2023 and 2022.

Current wording

We had $828.6 million and $847.7 million in cash, cash equivalents, restricted cash, and marketable securities as of December 31, 2024 and 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 December 31, 2024 and 2023.

Previous wording

Our primary uses of cash are to repurchase our stock, 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.

Current wording

Our primary uses of cash are for capital expenditures mainly in buildings, building improvements, and equipment, to repurchase our stock, 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.

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 expect our existing cash, cash equivalent, and short-term marketable securities to continue to 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. We intend to improve our profitability by improving margins and expanding in new markets for our tests, but these efforts are subject to risks, including those described in Item 1A of this Annual Report, and may not be successful. 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 year ended December 31, 2023, our operations provided $27.0 million of cash as compared to $253.5 million in 2022. The $226.5 million decrease in cash provided from operating activities in 2023 as compared with the corresponding 2022 period was primarily due to lower cash earnings, cash receipts from customers, and cash payments for operating expenses as COVID-19 revenue dissipated in 2023. 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 year ended December 31, 2024, our operations provided $21.1 million of cash as compared to $27.0 million in 2023. The decrease in cash provided from operating activities in 2024 compared to the corresponding 2023 period was primarily due to 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 FID-022, and as we continue to invest resources to grow our laboratory services business.

Previous wording

Cash used in investing activities in 2022 was $261.3 million, which primarily related to $418.0 million in the purchase of marketable securities, $172.7 million related to business acquisitions, $18.8 million related to the purchase of fixed assets consisting mainly of medical laboratory equipment and building improvement, $15.0 million related to the purchase of redeemable preferred stock and $10.0 million related to contingent consideration payouts related to business acquisitions, and partially offset by $232.5 million related to maturities of marketable securities and $140.2 million related to proceeds from sales of marketable securities.

Current wording

Cash used in investing activities in 2024 was $58.4 million, which primarily related to $472.4 million in purchase of marketable securities, $40.3 million related to the purchase of fixed assets consisting mainly of building, building improvement, and medical laboratory equipment, and partially offset by $349.8 million related to maturities of marketable securities, $104.3 million related to proceeds from sales of marketable securities, and $0.3 million related to the sale of fixed assets.

Previous wording

Cash provided by investing activities in 2023 was $38.9 million, which primarily related to $508.6 million related to maturities of marketable securities, $44.1 million related to proceeds from sales of marketable securities, and $775,000 related to the sale of fixed assets, and partially offset by $491.9 million in purchase of marketable securities, $22.2 million related to the purchase of fixed assets consisting mainly of medical laboratory equipment and building improvement, $399,000 related to a business acquisition.

Current wording

Cash provided by investing activities in 2023 was $38.9 million, which primarily related to $508.6 million related to maturities of marketable securities, $44.1 million related to proceeds from sales of marketable securities, and $0.8 million related to the sale of fixed assets, and partially offset by $491.9 million in purchase of marketable securities, $22.2 million related to the purchase of fixed assets consisting mainly of medical laboratory equipment and building improvement, and $0.4 million related to a business acquisition.

Previous wording

Cash used in financing activities in 2022 was $77.1 million, which primarily related to $74.3 million used in the repurchase of common stock and $1.8 million used in common stock withholding for employee tax obligations.

Current wording

Cash used in financing activities in 2024 was $4.8 million, which primarily related to $1.2 million used in the repayment of notes payable, and $2.9 million used in common stock withholding for employee tax obligations.

Previous wording

During the year ended December 31 2023, we repurchased 953,000 shares of our common stock at an aggregate cost of $25.1 million under the stock repurchase program. During the year ended December 31 2022, we repurchased 1.8 million shares of our common stock at an aggregate cost of $74.3 million under the stock repurchase program. As of December 31, 2023, a total of approximately $150.7 million remained available for future repurchases of our common stock under our stock repurchase programs.

Current wording

During the year ended December 31, 2024, we repurchased 10,000 shares of our common stock at an aggregate cost of $0.2 million under the stock repurchase program. During the year ended December 31, 2023, we repurchased 1.0 million shares of our common stock at an aggregate cost of $25.1 million under the stock repurchase program. During the year ended December 31, 2022, we repurchased 1.8 million shares of our common stock at an aggregate cost of $74.3 million under the stock repurchase program. As of December 31, 2024, a total of approximately $150.5 million remained available for future repurchases of our common stock under our stock repurchase programs.

Previous wording

As of December 31, 2023, we have an outstanding balance of $775,000 in notes payable to Xilong Scientific, which is due in March 2024, and $3.4 million of an installment loan, of which, the current portion is $408,000. See Note 8, Debt, Commitments and Contingencies, of our consolidated financial statements included in this report.

Current wording

As of December 31, 2024, we have an outstanding balance of $2.9 million on an installment loan, of which, the current portion is $0.4 million. See Note 8, Debt, Commitments and Contingencies, of our consolidated financial statements included in this report.

Previous wording

Represents non-cancelable purchase obligations for medical lab equipment, reagents and other supplies, see Note 8, Debt, Commitment and Contingencies, to the Consolidated Financial Statements.

Current wording

Represents purchase obligations for medical lab equipment, reagents and other supplies, see Note 8, Debt, Commitment and Contingencies, to the Consolidated Financial Statements.

Previous wording

This discussion and analysis is based on our consolidated financial statements included in this report, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments and assumptions and decisions that affect the reported amounts and related disclosures, including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates. In making these estimates and assumptions and reaching these decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including historical data and experience available at the date of the consolidated financial statements, as well as various other factors management believes to be reasonable under the circumstances, including but not limited to valuation of intangible assets and goodwill in recent business combinations. Actual results could differ from our estimates. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in our consolidated financial statements.

Current wording

This discussion and analysis is based on our consolidated financial statements included in this report, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments and assumptions and decisions that affect the reported amounts and related disclosures, including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates. In making these estimates and assumptions and reaching these decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including historical data and experience available at the date of the consolidated financial statements, as well as various other factors management believes to be reasonable under the circumstances, including but not limited to valuation of intangible assets and goodwill in recent business combinations. Actual results could differ from our estimates. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in our consolidated financial statements.

Previous wording

In the absence of Medicare coverage, contractually established reimbursement rates or other coverage, we have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions. Variable consideration attributable to these price concessions measured at the expected value using the “most likely amount” method under Accounting Standards Codification, or ASC, 606 Revenue from Contracts with Customers, or ASC 606. The amounts are determined by the historical average collection rates by test type and payor category taking into consideration the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgement and actions of third parties. Such variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. Variable consideration may be constrained and excluded form the transaction price in situations where there is no contractually agreed upon reimbursement coverage or in the absence of a predictable pattern and history of collectability with a payor.

Current wording

For insurance payors, in the absence of Medicare coverage, contractually established reimbursement rates or other coverage, we have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions. Variable consideration attributable to these price concessions measured at the expected value using the “most likely amount” method under Accounting Standards Codification, or ASC, 606 Revenue from Contracts with Customers, or ASC 606. The amounts are determined by the historical average collection rates by test type taking into consideration the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of third parties. Such variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. Variable consideration may be constrained and excluded from the transaction price in situations where there is the absence of a predictable pattern and history of collectability with a payor.

Previous wording

We re-assess our estimated transaction price at the end of each reporting period, including our assessment of whether our estimate of variable consideration is constrained to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. We record any necessary adjustments in the current period’s revenue. $23.0 million variable consideration was recognized as additional revenue in the year ended December 31, 2023 that related to collections for COVID-19 tests completed in the prior period.

Current wording

We re-assess our estimated transaction price at the end of each reporting period, including our assessment of whether our estimate of variable consideration is constrained to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. We record any necessary adjustments in the current period’s revenue. $1.8 million and $23.0 million variable consideration was recognized as additional revenue in the year ended December 31, 2024 and 2023, respectively, that related to collections for COVID-19 tests completed in the prior period.

Previous wording

There can be no assurance that the estimates and assumptions management made for the purposes of the goodwill or in-process research & development, or IPR&D, impairment analysis will prove to be accurate predictions of future performance. It is possible that the conclusions regarding impairment or recoverability of goodwill or intangible assets could change in future periods. We will continue to monitor the therapeutic development reporting unit. For all IPR&D projects, there are major risks and uncertainties associated with the timely and successful completion of development and commercialization of these product candidates, including the ability to confirm their efficacy based on data from clinical trials, the ability to obtain necessary regulatory approvals, and the ability to successfully complete these tasks within budgeted costs. We are not able to market a human therapeutic without obtaining regulatory approvals, and such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. In addition, the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans, impact the revenues a product can generate. Consequently, the eventual realized value, if any, of these acquired IPR&D projects may vary from their estimated fair values.

Current wording

There can be no assurance that the estimates and assumptions management made for the purposes of the goodwill or in-process research & development, or IPR&D, impairment analysis will prove to be accurate predictions of future performance. It is possible that the conclusions regarding impairment or recoverability of goodwill or intangible assets could change in future periods. We will continue to monitor the therapeutic development reporting unit. For all IPR&D projects, there are major risks and uncertainties associated with the timely and successful completion of development and commercialization of these drug candidates, including the ability to confirm their efficacy based on data from clinical trials, the ability to obtain necessary regulatory approvals, and the ability to successfully complete these tasks within budgeted costs. We are not able to market a human therapeutic without obtaining regulatory approvals, and such approvals require completing clinical trials that demonstrate a drug candidate is safe and effective. In addition, the availability and extent of coverage and reimbursement from insurance payors, including government healthcare programs and private insurance plans, impact the revenues a product can generate. Consequently, the eventual realized value, if any, of these acquired IPR&D projects may vary from their estimated fair values.