FULGENT GENETICS, INC. 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
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.
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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
March 31, $ %
2023 2022 Change Change
Statement of Operations Data: (in thousands)
Revenue $ 66,168 $ 320,268 $ (254,100 ) (79%)
Cost of revenue 47,357 77,725 (30,368 ) (39%)
Gross profit 18,811 242,543 (223,732 ) (92%)
Operating expenses:
Research and development 9,782 5,989 3,793 63%
Selling and marketing 10,083 7,940 2,143 27%
General and administrative 21,802 25,775 (3,973 ) (15%)
Amortization of intangible assets 1,968 906 1,062 117%
Total operating expenses 43,635 40,610 3,025 7%
Operating (loss) income (24,824 ) 201,933 (226,757 ) (112%)
Interest and other income, net 3,775 45 3,730 8,289%
(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%)
Net (loss) income from consolidated
operations (15,849 ) 153,557 (169,406 ) (110%)
Net loss attributable to
noncontrolling interests 509 422 87 21%
Net (loss) income attributable to
Fulgent $ (15,340 ) $ 153,979 $ (169,319 ) (110%)
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Revenue
Revenue decreased
Revenue from non-
After aggregating customers that are under common control or affiliation, no customer contributed 10% or more of the Company's revenue in the first quarter of 2023, and one customer contributed 27% of the Company's revenue in the first quarter of 2022.
Cost of Revenue
Cost of revenue decreased
Our gross profit decreased
Research and Development
Research and development expenses increased
Selling and Marketing
Selling and marketing expenses increased
General and Administrative
General and administrative expenses decreased
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
Interest and Other Income, net
Interest and other income, net, is primarily comprised of net interest income
(expenses), which was
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(Benefit from) Provision for Income Taxes
(Benefit from) provision for income taxes income taxes was
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
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 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 )
688
Net cash used in financing activities $ (1,101 ) $ (934 )
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Operating Activities
Cash used in operating activities in the first quarter of 2023 was
Cash provided by operating activities in the first quarter of 2022 was
Investing Activities
Cash used in investing activities in the first quarter of 2023 was
Cash provided by investing activities in the first quarter of 2022 was
Financing Activities
Cash used in financing activities in the first quarter of 2023 was
Cash used in financing activities in the first quarter of 2022 was
Stock Repurchase Program
In
During the first quarter of 2023, we did not repurchase any common stock under
our stock repurchase program. As of
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.
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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
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