What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-28 · 121 added, 129 removed, 272 unchanged (48% of the section changed)

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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.

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.

Our laboratory services business includes technical laboratory and testing services and professional interpretation of laboratory results by licensed physicians.

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.

2024 Developments

In 2023, we launched new Beacon787 expanded carrier screening panel.

Beacon787 includes a total of 787 genes associated with autosomal recessive and X-linked conditions.

Included in this panel are all of the American College of Medical Genetics and Genomics, or ACMG, tier 3 genes, which ACMG published in their latest practice guideline for carrier screening, recommending that all pregnant patients and those planning a pregnancy be offered this set of genes as an equitable, pan-ethnic screening approach.

The ACMG list includes genes with carrier frequency of >1/200 for autosomal recessive conditions and disease prevalence of >1/40,000 for X-linked conditions.

Leveraging our proprietary platform and informatics, Beacon787 frequently excels as it relates to analytical detection rates, ability to discern pseudogenes, and reliable copy number calls.

This was an important product launch for us and a big step forward in carrier screening.

Carrier screening assesses the risk for individuals and couples to pass on certain genetic conditions to their children.

This testing is for women or couples who are currently expecting, considering pregnancy, or planning to become pregnant in the future.

Most often, carriers for these conditions do not have symptoms or a positive family history of disease.

Carrier screening can identify these otherwise unknown risks and allow patients to make informed decisions about family planning.

The American College of Obstetricians and Gynecologists, ACOG, recommends offering carrier screening to all women who are considering pregnancy, regardless of ethnicity or family history.

In 2024, we began enrollment of a Phase 2, randomized, multi-center, open-label trial of FID-007 in patients with recurrent or metastatic H&N squamous cell carcinoma, established seven testing sites, and as of December 31, 2024, we had enrolled 17 patients.

In December 2024, we filed an IND for the investigation of FID-022 in a Phase 1/1b clinical trial, and in January 2025, the IND for this trial was cleared by the FDA.

Factors Affecting Our Performance

Mix of Tests Delivered

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.

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.

Mix of Customers

Mix of Customers and Purchasing Terms

We consider each single billing and paying unit to be an individual customer, even though a unit may represent multiple physicians and healthcare providers ordering tests.

The composition and concentration of our customer base can fluctuate from period to period, and in certain prior periods, a small number of customers have accounted for a significant portion of our revenue.

Generally, we do not have long-term purchase agreements with any of our customers, including these key customers, and, as result, any or all of them could decide at any time to increase, accelerate, decrease, delay or discontinue their orders from us.

we do not have long-term purchase agreements with any of our customers, including these key customers, and, as result, any or all of them could decide at any time to increase, accelerate, decrease, delay or discontinue their orders from us.

Although we believe some of these fluctuations in customer demand may be attributable in part to the nature of our business, in which our customers can experience significant volatility in their testing demand from period to period in the ordinary course of their operations, these demand fluctuations, particularly for our key customers, can have a significant impact on our period-to-period performance regardless of their cause.

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(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.

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.

We are making efforts to diversify our customer market, including building relationships with hospitals and affiliated specialties related to our service offerings.

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 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.

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.

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We believe our ability to continue to offer more genes and more ordering flexibility than our competitors could be a key contributor to the long-term growth of our business.

Ability to Maintain Low Internal Costs

Ability to Maintain Low Internal Costs and Inflation

We have developed various proprietary technologies that improve our laboratory efficiency and reduce the costs we incur to perform our tests, including our proprietary gene probes, data algorithms, adaptive learning software and genetic reference library.

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Moreover, changes in our other operating expenses, due to investments in these aspects of our business or other factors, are not taken into account but impact our overall results, which can limit the utility of cost as an overall cost measurement tool.

Ability to Obtain Reimbursement

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.

Similar to other companies in our industry, we have and may again experience the effects of inflation in the costs of labor, materials and services in connection with the marketing of our tests and testing services and in connection with our research and development efforts.

Ability to Obtain Reimbursement and Government Audits and Investigations

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 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.

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.

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.

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.

These reimbursement activities also subject us to payor and government audits and investigations such as the HRSA audit and the CIDs discussed in Note 8, Debt, Commitments and Contingencies to the Consolidated Financial Statements.

The results of these matters and the expenses and use of resources needed in connection with these and similar matters could materially affect our results of operations.

Foreign Currency Exchange Rate Fluctuations

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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.

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.

Research and Development Expenses

Research and development expenses represent costs incurred to develop our technology and future tests and treatments.

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

These costs consist of:

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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.

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.

Selling and Marketing Expenses

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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.

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.

General and Administrative Expenses

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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.

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.

Goodwill Impairment Loss

A goodwill impairment loss is measured as the amount by which a reporting unit’s carrying value, including goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill.

Amortization of Intangible Assets

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If impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset.

Restructuring Costs

Restructuring costs represent one-time employee termination benefits provided to employees associated with a newly acquired entity that were involuntarily terminated.

A plan of termination was approved and authorized by management in the second quarter of 2022.

The plan identified specific employees to be terminated and established terms of benefits those employees would receive upon termination.

No additional costs were incurred under the plan of termination post 2022, and the payable balance has been paid off.

Provision for Income Taxes

Provision for income taxes consists of U.S.

(Benefit from) Provision for Income Taxes

(Benefit from) provision for income taxes consists of U.S.

federal and state income taxes.

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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.

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.

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.

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Year Ended December 31,

Statement of Operations Data:

(dollars in thousands)

(in thousands, except percentages)

Statement of Operation Data

Cost of revenue

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Goodwill impairment loss

Restructuring costs

Total operating expenses

Operating (loss) income

Interest and other income, net

Income (loss) before income taxes

Provision for income taxes

Other income (expenses):

Interest income

Interest expense

Impairment of available-for-sale debt securities

Other income, net

Total other income, net

(Loss) income before income taxes

(Benefit from) provision for income taxes

Net (loss) income from consolidated operations

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Net (loss) income attributable to Fulgent

* not meaningful

Year Ended December 31,

Revenue Data:

(dollars in thousands)

(in thousands, except percentages)

Revenue from laboratory services

Precision diagnostics

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BioPharma services

Total laboratory services

Revenue decreased by $5.7 million, or 2%, from $289.2 million in 2023 to $283.5 million in 2024.

The decrease in revenue between periods was due to a decrease in COVID-19 testing revenue of 94%, and partially offset by increases in our other revenue streams of 44% for the periods.

We ceased our COVID-19 testing operations at the end of the first quarter of 2023.

As a result, we have been focusing our efforts on growing our precision diagnostics, anatomic pathology, and BioPharma services revenue streams.

For the year ended December 31, 2023, precision diagnostics, anatomic pathology, and BioPharma services accounted for 46%, 36%, and 9% of our consolidated revenue, respectively, and increased $38.3 million, $29.9 million, and $12.4 million, respectively, compared to 2022.

The increase in precision diagnostics revenue and anatomic pathology revenue was due to an additional four months of revenue in 2023 compared to 2022 as Inform Diagnostics was acquired at the end of April 2022.

The increase in precision diagnostics was also due to a growth in reproductive health services which included the launch of our expanded Beacon787 testing.

The increase in BioPharma services was due to the addition of a few concentrated customers.

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;

The decrease in revenue between periods was driven by decreases of $24.8 million in COVID-19 testing, $9.1 million in BioPharma services, and $7.6 million in anatomic pathology.

However, these declines were offset by an increase of $35.8 million in precision diagnostics.

The decrease in COVID-19 testing services resulted from the cessation of testing operations at the end of March 2023.

Continued COVID-19 revenues after March 2023 are due to variable consideration recognized for services completed in prior periods.

The decrease in anatomic pathology services was due to lower reimbursement rates from insurance payors and client losses.

The decrease in BioPharma services revenue was primarily due to the scaling back or termination of certain projects, as some clients faced financial distress, underwent restructuring, shifted strategic priorities, adapted to market changes, or completed large clinical trials.

BioPharma services revenue is expected to remain variable due to the long sales cycle and project timing differences.

Conversely, the increase in precision diagnostics revenue was driven by growth in our reproductive health services and legacy diagnostic offerings.

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;

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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.

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.

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.

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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.

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.

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Year Ended December 31,

(dollars in thousands)

(in thousands, except percentages)

Cost of revenue

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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 $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.

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.

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.

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.

Research and Development

Year Ended December 31,

(in thousands, except percentages)

Research and development

(dollars in thousands)

Laboratory services

Therapeutic development

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.

Research and development expenses for the therapeutic development segment were $11.7 million and $746,000 in 2023 and 2022, respectively, and were primarily related to the development of FID-007.

2022 was a partial year as the segment was acquired in November of 2022.

Research and development expenses in 2023 included $6.4 million of personnel expenses, including equity-based compensation under the equity plan assumed as part of the business combination, and $4.5 million in drug study with various CROs.

We anticipate research and development expenditures for this segment will significantly increase in the future, as we expect to begin enrollment for a phase 2 study of FID-007 in the second quarter of 2024.

Total research and development

For the laboratory services segment, the research and development expenses were mainly for advancing our technology and future testing and testing services.

The expenses decreased by $1.3 million, or 4%, from $29.7 million in 2023 to $28.4 million in 2024.

The decrease was primarily attributed to reductions of $0.6 million in facility expenses due to the consolidation of office and laboratory space, $0.3 million in depreciation expenses, $0.2 million in personnel expenses, and $0.1 million in consulting and external labor expenses.

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.

For the therapeutic development segment, the research and development expenses in 2024 included $10.9 million in CRO costs, $8.6 million in personnel costs, including equity-based compensation, and $0.7 million in depreciation expenses.

In 2023, these expenses comprised $6.4 million of personnel expenses, including equity-based compensation, $4.5 million in CRO costs, and $0.7 million in depreciation expenses.

Research and development expenses for the therapeutic development segment increased by $8.7 million, or 74%, from $11.7 million in 2023 to $20.4 million in 2024.

The increase was primarily driven by increases of $6.4 million in CRO costs and $2.2 million in personnel costs, including equity-based compensation expense.

The overall increase was attributed to the advancement and continuation of the clinical study of FID-007, along with the completion of preclinical work for FID-022.

In 2024, approximately $2.1 million was incurred for the preclinical development of FID-022, whereas related costs in 2023 were minimal.

Looking ahead, we expect research and development expenses to continue increasing as clinical trials progress for FID-007, FID-022, and other preclinical studies.

Selling and Marketing

Our consolidated selling and marketing expenses increased by $2.5 million, or 7%, from $38.9 million in 2022 to $41.5 million in 2023.

The increase was primarily due to increases of $2.2 million in software expense, $1.5 million in facilities expense, $742,000 in personnel costs, including equity-based compensation expense, and $456,000 in advertising and marketing expenses, mainly 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 partially offset by a decrease of $2.6 million in consulting and outside labor costs related to decreased COVID-19 testing.

Our consolidated selling and marketing expenses decreased by $5.2 million, or 13%, from $41.5 million in 2023 to $36.2 million in 2024.

The decrease was primarily due to decreases of $1.9 million in facility expenses due to the consolidation of office space, $1.3 million in consulting and outside labor expenses, $1.0 million in advertising and marketing expenses, $0.9 million in commissions, $0.6 million in depreciation expenses, $0.3 million in losses of fixed asset disposals, and $0.2 million in software and software licensing expenses, and partially offset by an increase of $1.0 million personnel costs, including equity-based compensation expense.

General and Administrative

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 $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.

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.

Amortization of Intangible Assets

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.

Goodwill Impairment Loss

Year Ended December 31,

Goodwill impairment loss

(dollars in thousands)

Goodwill impairment loss

Laboratory services

Therapeutic development

Goodwill impairment loss for 2023 was comprised of a full goodwill impairment loss of $120.2 million for the Laboratory Service reporting unit.

* not meaningful

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.

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See Note 17, Goodwill and Intangible Assets, for more details.

Restructuring Costs

Restructuring expenses represent one-time employee termination benefits provided to employees that were involuntarily terminated in association with the acquisition of a new entity in 2022.

Interest and Other Income, Net

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.

Provision for Income Taxes

Provision for income taxes were $1.2 million and $42.1 million in 2023 and 2022, respectively.

The effective income tax rate was (0.69)% and 22.7% of income before income taxes for 2023 and 2022, respectively.

The change in the effective tax rate for 2023 relative to 2022 was due to the establishment of a valuation allowance on the Company’s net deferred tax assets.

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, and, accordingly, has provided a full valuation allowance at December 31, 2023.

Other Income (Expenses)

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.

(Benefit from) Provision for Income Taxes

(Benefit from) provision for income taxes were ($8.1) million and $1.2 million in 2024 and 2023, respectively.

The effective income tax rate was 16.11% and (0.69)% of loss before income taxes for 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.

The increase in the valuation allowance for 2024 was primarily due to the increase in capitalized Section 174 expenditures.

See Note 11, Income Taxes , to our consolidated financial statements included in this report for more information regarding our income taxes.

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Liquidity and Sources of Cash

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

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.

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treasury bills, corporate bonds, municipal bonds, and Yankee debt securities as of December 31, 2024 and 2023.

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.

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.

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.

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.

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Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

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During the year ended December 31, 2024, our operations provided $21.1 million of cash as compared to $27.0 million in 2023.

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.

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.

Investing Activities

The cash provided by or used in investing activities are impacted by capital expenditures for operation needs and timing of payments, timing of maturities of marketable securities, and discretionary business combinations and other investment.

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.

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.

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.

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.

Financing Activities

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.

Cash used in financing activities in 2023 was $47.8 million, which primarily related to $25.1 million used in the repurchase of common stock, $15.0 million used in the repayment for the margin account, $4.3 million used in the repayment of notes payable, and $2.7 million used in common stock withholding for employee tax obligations.

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.

We did not expect to use any credit facilities due to the strong cash position as of December 31, 2024.

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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.

Material Cash Requirements and Contractual Obligations as of December 31, 2024

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.

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.

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For further information, refer to Note 9, Leases , to the Consolidated Financial Statements.

(3) 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.

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

Critical Accounting Policies and Use of Estimates

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.

The preparation of consolidated financial statements in accordance with U.S.

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We recognize revenue in an amount that reflects the consideration to which we expect to be entitled in exchange for the transfer of promised goods or services to our customers.

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.

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 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.

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 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.

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.

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.

$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.

Valuation of Goodwill and Indefinite-Lived Intangible Assets

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The acquisition method of accounting for business combinations requires us to estimate the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in an acquired business to properly allocate purchase price consideration between assets that are depreciated or amortized and goodwill.

We assess goodwill and indefinite-lived intangibles for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We may choose to bypass a qualitative assessment of impairment for any reporting unit and proceed directly to performing a quantitative assessment.

We would recognize an impairment loss for the amount by which the reporting unit's carrying amount exceeds its fair value.

Our quantitative assessment includes estimating the fair value of each reporting unit and comparing it to its carrying value.

We estimate the fair value of reporting units using both income-based and market-based valuation methods.

We typically engage a third-party appraisal firm to assist us with the valuation.

Based upon the range of estimated values developed from the income and market-based methods, we determine the estimated fair value for each reporting unit.

If the estimated fair value of a reporting unit exceeds its carrying value, the goodwill is not impaired, and no further review is required.

The income-based fair value methodology is based on a reporting unit’s forecasted future cash flows that are discounted to the present value using the reporting unit’s weighted average cost of capital, or WACC.

Under the income-based approach, it requires management's assumptions and judgments regarding economic conditions in the markets in which we operate and conditions in the capital markets, many of which are outside of management's control.

The market-based fair value methodology looks at the guideline public company valuation method to determine the prices of comparable public companies and looks at merger and acquisition methods, similar businesses that were sold recently, to estimate the value of our reporting units.

Under the market-based approach, judgment is required in evaluating market multiples and recent transactions.

We performed our annual goodwill and intangible asset impairment test on December 31, 2023, and elected to bypass the optional qualitative test and perform the quantitative assessments for both our laboratory services and therapeutic development reporting units which includes an indefinite-lived intangible asset.

See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in this report for information about our valuation and assessment process with regard to potential impairment of goodwill and indefinite-lived intangibles.

Also see Note 17, Goodwill and Intangible Assets , to our consolidated financial statements included in this report for details on the valuation estimate and results for 2024.

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.

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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.

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.

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We typically invest in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.

Our investments in fixed rate interest earning securities carry a degree of interest rate

Our investments in fixed rate interest earning securities carry a degree of interest rate risk.

Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates.

Unrealized gains or losses on our marketable debt securities are primarily due to interest rate fluctuations as compared to interest rates at the time of purchase.

We measure our debt securities at fair value with gains and losses recorded in Other Comprehensive Income until the securities are sold, less any expected credit losses.

We measure our debt securities at fair value with gains and losses recorded in other comprehensive income (loss) until the securities are sold, less any expected credit losses.

To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming a 100-basis point parallel shift in the yield curve.

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For the purpose of analyzing foreign currency exchange risk, we considered the historical trends in foreign currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 10% could be experienced in the near term.

If an adverse 10% foreign currency exchange rate change was applied to total monetary assets denominated in currencies other than the functional currencies at the balance sheet date, it would have resulted in decrease on income before income taxes of approximately $1.3 million as of December 31, 2023, and $844,000 as of December 31, 2022.

If an adverse 10% foreign currency exchange rate change was applied to total monetary assets denominated in currencies other than the functional currencies at the balance sheet date, it would have resulted in decrease in assets of approximately $1.1 million as of December 31, 2024, and $1.3 million as of December 31, 2023.

The impact to income (loss) before income tax was not significant.

Financial Statemen ts and Supplementary Data.

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What changed 10-K

Item 7. Management’s Discussion and Analysis