Fulgent Genetics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included in this report. Additionally, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K promulgated by the Securities and Exchange Commission in preparing this discussion and analysis, we presume that readers have access to and have read the discussion and analysis of our financial condition and resul ts of operations included in our annual report on Form 10-K for our fiscal year ended December 31, 2019 filed with the SEC on March 13, 2020. As used in this discussion and analysis and elsewhere in this report, unless the context otherwise requires, the terms “Fulgent,” the “Company,” “we,” “us” and “our” refer to Fulgent Genetics, Inc. and its consolidated subsidiaries. Forward-Looking Statements The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are statements other than historical facts and relate to future events or circumstances or our future performance, and they are based on our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. The forward-looking statements in this discussion and analysis include statements about, among other things, our future financial and operating performance, our future cash flows and liquidity and our growth strategies, as well as anticipated trends in our business and industry. These forward-looking statements are subject to a number of risks and uncertainties, including, among others, those described under “Item 1A. Risk Factors” in Part II of this 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 a fter the date of this report to conform these statements to actual results or to changes in our expectations. Overview We are a technology company offering comprehensive genetic testing providing physicians with clinically actionable diagnostic information they can use to improve the quality of patient care. We have developed a proprietary technology platform that allows us to offer a broad and flexible test menu and continually expand and improve our proprietary genetic reference library, while maintaining accessible pricing, high accuracy and competitive turnaround times. We believe our test menu offers more genes for testing than our competitors in today’s market, which enables us to provide expansive options for test customization and clinically actionable results. Our existing customer base consists primarily of hospitals, medical institutions, other laboratories, governmental bodies, municipalities, and large corporations, which are typically frequent and high-volume users of tests and which often pay us directly for our tests. We believe our relationships with these customers provide a meaningful opportunity for further growth, as we seek to deepen these relationships and drive increased ordering. We also believe our offering could be attractive to other types of customers, including individual physicians and other practitioners, research institutions and other organizations, and we are building relationships in these new customer markets. Although we have devoted fewer overall resources to sales and marketing efforts than many of our competitors, we made material investments in our sales and marketing team and strategies, the global reach of our business and other aspects of our operations. Since March 2020, we have commercially launched several tests, or COVID-19 tests, for the detection of SARS-CoV-2, the virus that causes COVID-19, including NGS and RT-PCR-based tests. We have received EUAs from the FDA for the RT-PCR-based tests for the detection of SARS-CoV-2 using upper respiratory specimens (nasal, nasopharyngeal, and oropharyngeal swabs) and for our at-home COVID-19 testing service through Picture Genetics. Our at-home testing service for COVID-19 and RT-PCR-based tests have been granted EUAs by the FDA only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens. We are currently accepting patient samples directly to our Biosafety Level 2, or BSL-2, certified laboratory in Temple City, California where we have the capacity to accept and process thousands of samples per day with a typical turn-around time of 24-48 hours from the time the sample was received and accepted. To date, we have processed orders for our COVID-19 tests from a variety of customers, including governmental bodies, municipalities, and large corporations. 19 We offer tests at competitive prices averaging approximately $ 129 per billable test delivered in the six months ended June 30, 2020 , and at a lower cost to us than many of our competitors, averaging approximately $ 61 per billable test delivered in the six months ended June 30, 2020 . Our volume has grown rapidly since our commercial launch, with 180,513 and 193,676 billable tests delivered in the three and six months ended June 30 , 2020, respectively, compared to 16,369 and 23,899 billable tests delivered in the three and six months ended June 30 , 2019, respectively. An aggregate of over 311,450 billable tests were delivered to approximately 1,180 customers since launching our first commercial genetic tests in 2013 and t hrough June 30, 2020 . We have experienced compound quarterly growth of 64% in the number of billable tests delivered in our last eight completed fiscal quarters. We recorded revenue and net income of $ 17.3 million and $ 3.3 million , respectively, in the thr ee months ended June 30, 2020 , compared to revenue and net income of $8.4 million and $331 ,000 , respectively, in the three months ended June 30, 2019 . We recorded revenue and net income of $ 25.0 million and $ 1.4 million , respectively, in the six months ended June 30, 2020 , compared to revenue and net loss of $13.8 million and $1.6 million, respectively, in the six months ended June 30, 2019 . We achieved profitability in the first half of 2017 , the second and third quarters of 2019 and the second quarter of 2020 , but we have recorded losses in all other periods since our inception. COVID-19 Considerations The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S. economy and financial markets. We are closely monitoring the impact of COVID-19 on all aspects of our business, including its impact on our customers, suppliers, third-party service providers, and our employees. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat it and the economic impact on local, regional, national and international markets and supply chains. We continued to operate as an essential business in response to COVID-19. In the three and six months ended June 30, 2020, the COVID-19 pandemic did not have a material negative impact on our consolidated operating results. However, the responses of the federal, international, state and regional governments to the pandemic, including the shelter in place orders and the allocation of healthcare resources to treating those infected with the virus, have caused and may continue to cause a significant decline in the number of our traditional genetics tests ordered, which may impact our future revenues . Even after the COVID-19 outbreak has subsided, we may experience materially adverse impacts on our financial condition and results of operations. Our ability to continue to operate as currently planned, including continuing to offer our COVID-19 tests with a competitive results turn-around time, without any significant negative operational impact from the COVID-19 pandemic will in part depend on our, and any of our third party service providers’ and suppliers’ ability to protect our respective employees and supply chains. We have endeavored to follow the recommended actions of government and health authorities to protect our employees. We intend to continue to adhere to our employee safety measures to ensure that any disruptions to our operations remain minimal during the pandemic. However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our, or our third-party service providers’ and suppliers’, workforce and supply chain. The COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of June 30, 2020. We have not incurred any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic as of June 30, 2020. For additional information on risk factors related to the COVID-19 pandemic or other risks that could impact our results, please refer to “Item 1A. Risk Factors” in Part II of this Form 10-Q. 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 II of this 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 2019 Annual Report. 20 Results of Operations The table below summarizes our results of operations for the periods indicated. 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 operations data, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2019 Annual Report. Three Months Ended Six Months Ended June 30, $ % June 30, $ % 2020 2019 Change Change 2020 2019 Change Change Statement of Operations Data: (dollars in thousands, except Other Operating Data) Revenue $ 17,265 $ 8,424 $ 8,841 105 % $ 25,018 $ 13,794 $ 11,224 81 % Cost of revenue 7,717 3,620 4,097 113 % 11,774 6,588 5,186 79 % Gross profit 9,548 4,804 4,744 99 % 13,244 7,206 6,038 84 % Operating expenses: Research and development 1,849 1,574 275 17 % 3,827 2,998 829 28 % Selling and marketing 3,260 1,304 1,956 150 % 4,857 2,576 2,281 89 % General and administrative 1,799 1,631 168 10 % 3,834 3,160 674 21 % Total operating expenses 6,908 4,509 2,399 53 % 12,518 8,734 3,784 43 % Operating income (loss) 2,640 295 2,345 795 % 726 (1,528 ) 2,254 148 % Interest and other income, net 275 192 83 43 % 516 399 117 29 % Income (loss) before income taxes and equity loss in investee 2,915 487 2,428 499 % 1,242 (1,129 ) 2,371 210 % Provision for (benefit from) income taxes (599 ) 7 (606 ) (8,657 %) (565 ) 20 (585 ) (2,925 %) Income (loss) before equity loss in investee 3,514 480 3,034 632 % 1,807 (1,149 ) 2,956 257 % Equity loss in investee (193 ) (149 ) (44 ) 30 % (442 ) (428 ) (14 ) (3 %) Net income (loss) $ 3,321 $ 331 $ 2,990 903 % $ 1,365 $ (1,577 ) $ 2,942 187 % Other Operating Data: Billable tests delivered (1) 180,513 16,369 164,144 1,003 % 193,676 23,899 169,777 710 % Average price per billable test delivered (2) $ 96 $ 515 $ (419 ) (81 %) $ 129 $ 577 $ (448 ) (78 %) Cost per billable test delivered (3) $ 43 $ 221 $ (178 ) (81 %) $ 61 $ 276 $ (215 ) (78 %) (1) We determine the number of billable tests delivered in a period by counting the number of tests which are delivered to our customers and for which we bill our customers and recognize some amount of revenue in the period. (2) We calculate the average price per billable test delivered by dividing the amount of revenue we recognized from the billable tests delivered in a period by the number of billable tests delivered in the same period. (3) We calculate cost per billable test delivered by dividing our cost of revenue in a period by the number of billable tests delivered in the same period. 21 Revenue Revenue increased $8.8 million, or 105%, from $8.4 million in the three months ended June 30, 2019 to $17.3 million in the three months ended June 30, 2020 , and increased $11.2 million, or 81%, from $13.8 million in the six months ended June 30, 2019 to $25.0 million in the six months ended June 30, 2020. The increase in revenue between periods was primarily due to increase in the number of billable tests delivered, including orders for our recently launched COVID-19 tests, offset by a substantial decline in the average selling price per test. The average price of the billable tests we delivered decreased from $515 in the three months ended June 30, 2019 to $96 in the three months ended June 30, 2020, and decreased from $577 in the six months ended June 30, 2019 to $129 in the six months ended June 30, 2020. The decreases were due to (i) lower price-points for the mix of tests we delivered, including our recently launched COVID-19 tests, in the three and six months ended June 30, 2020 , (ii) the mix of customers ordering tests in these periods, who may order tests at different rates depending on the arrangements we have negotiated with them, and for which we may recognize different amounts of revenue at different times in the delivery and payment process based on the impact of our revenue recognition policy on, and differing collectability rates among, various customer groups, and (iii) our reduction of prices for certain of our tests due to general price degradation for genetic tests and other competitive factors during the three and six months ended June 30, 2020 . Revenue from non-U.S. sources decreased $611,000, or 35%, from $1.7 million in the three months ended June 30, 2019 to $1.1 million in the three months ended June 30, 2020, and decreased $253,000, or 7%, from $3.5 million in the six months ended June 30, 2019 to $3.2 million in the six months ended June 30, 2020 . The decreases in revenue from non-U.S. sources between periods were primarily due to decreased sales to customers in other countries, which decreased by $424,000 and $147,000 in the three and six months ended June 30, 2020, respectively, and specifically decreased sales to customers in Canada, which decreased by $187,000 and $106,000 in the three and six months ended June 30, 2020, respectively . The number of billable tests we delivered increased 164,144, from 16,369 in the three months ended June 30, 2019 to 180,513 in the three months ended June 30, 2020, and increased 169,777, from 23,899 in the six months ended June 30, 2019 to 193,676 in the six months ended June 30, 2020 . The increases were primarily attributable to the expansion of our test menu, including our recently launched COVID-19 tests, and increases in sales to certain of our existing and new customers. After aggregating customers that are under common control or are affiliates, one customer contributed 45% of our total revenue in the three months ended June 30, 2020, and one customer contributed 31% of our total revenue in the six months ended June 30, 2020. Cost of Revenue Cost of revenue increased $4.1 million, or 113%, from $3.6 million in the three months ended June 30, 2019 to $7.7 million in the three months ended June 30, 2020 . The increase was primarily due to increases of $2.9 million in reagent and supply expenses and $536,000 in outside labor expense related to increased billable tests delivered and $339,000 in personnel costs and $103,000 in equity-based compensation expense related to increased headcount and stock price. Cost of revenue increased $5.2 million, or 79%, from $6.6 million in the six months ended June 30, 2019 to $11.8 million in the six months ended June 30, 2020. The increase was primarily due to increases of $3.7 million in reagent and supply expenses and $535,000 in outside labor expense related to increased billable tests delivered, $417,000 in personnel costs and $192,000 in equity-based compensation expense related to increased headcount and stock price . Cost per billable test delivered decreased $178, or 81%, from $221 in the three months ended June 30, 2019 to $43 in the three months ended June 30, 2020 as the increase in the number of billable tests we delivered was greater than the increase in our cost of revenue due to economies of scale related to the increased number of billable tests for the period. Cost per billable test delivered decreased $215, or 78%, from $276 in the six months ended June 30, 2019 to $61 in the six months ended June 30, 2020 as the increase in the number of billable tests we delivered was greater than the increase in our cost of revenue. The greater increase in the number of billable tests we delivered was primarily attributable to new customers and our expanded test menu, including our recently launched COVID-19 tests . Our cost per billable test decreased in part due to our efforts to leverage our technology, such as engineered chemistry and competitive analytics powered by artificial intelligence and machine learning. Our gross profit increased $4.7 million, from $4.8 million in the three months ended June 30, 2019 to $9.5 million in the three months ended June 30, 2020, and increased $6.0 million, from $7.2 million in the six months ended June 30, 2019 to $13.2 million in the six months ended June 30, 2020. Our gross profit as a percentage of revenue, or gross margin, decreased from 57.0% to 55.3% between three months ended June 30, 2019 and 2020, and increased from 52.2% to 52.9% between six months ended June 30, 2019 and 2020, due in part to the increase in revenue and decreases in our cost per billable test and cost of revenue described above. 22 R esearch and Development Research and development expenses increased $275,000, or 17%, from $1.6 million in the three months ended June 30, 2019 to $1.8 million in the three months ended June 30, 2020. The increase was primarily due to increases of $209,000 in personnel costs and $131,000 in equity-based compensation expense related to increased headcount and stock price. Research and development expenses increased $829,000, or 28%, from $3.0 million in the six months ended June 30, 2019 to $3.8 million in the six months ended June 30, 2020. The increase was primarily due to increases of $528,000 in personnel costs and $265,000 in equity-based compensation expense related to increased headcount and stock price, and $134,000 in reagent and supply expenses related to increased reagent usage for COVID-19 research. Selling and Marketing Selling and marketing expenses increased $2.0 million, or 150% from $1.3 million in the three months ended June 30, 2019 to $3.3 million in the three months ended June 30, 2020. The increase was primarily due to increases of $1.7 million in marketing supplies to potential customers including kits related to the increased number of COVID-19 tests delivered in the current period, $156,000 in consulting and outside labor expense related to COVID-19 marketing projects in the current period, and $104,000 in personnel costs related to increased commission expense and stock awards granted to sales representatives. Selling and marketing expenses increased $2.3 million, or 89% from $2.6 million in the six months ended June 30, 2019 to $4.9 million in the six months ended June 30, 2020. The increase was primarily due to increases of $1.8 million in marketing supplies to potential customers including kits related to the increased number of COVID-19 tests delivered in the current period, $235,000 in consulting and outside labor expense related to COVID-19 marketing projects in the current period, and $143,000 in personnel costs related to increased commission expense and stock award granted to sales representatives. General and Administrative General and administrative expenses increased $168,000, or 10% from $1.6 million in the three months ended June 30, 2019 to $1.8 million in the three months ended June 30, 2020. The increase was primarily due to increases of $107,000 in accounting fees, $83,000 in personnel costs and $73,000 in equity-based compensation expense related to increased headcount and stock price, $63,000 in other state tax related to increased franchise tax, business property tax and business licenses tax, and $60,000 in software and licensing related to new billing software, partially offset by a decrease of $229,000 in legal fees related to case settlement in the prior period. General and administrative expenses increased $674,000, or 21% from $3.2 million in the six months ended June 30, 2019 to $3.8 million in the six months ended June 30, 2020. The increase was primarily due to increases of $211,000 in accounting fees, $146,000 in personnel costs and $145,000 in equity-based compensation related to increased headcount and stock price, $135,000 in bad debt expense related to additional reserve for doubtful accounts in the current period, and $106,000 in software and licensing related to new billing software, partially offset by a decrease of $165,000 in legal and professional fees related to case settlement in the prior period. Interest Income and Other Income (Losses) Interest income was $249,000 and $204,000 in the three months ended June 30, 2020 and 2019, respectively, and $575,000 and $418,000 in the six months ended June 30, 2020 and 2019, respectively. This income related to interest received on various investments in marketable securities . Other income (losses) were $26,000 and $(59,000) in the three and six months ended June 30, 2020. Other losses were not significant in the three or six months ended June 30, 2019. The primary component of other losses in both periods was foreign currency valuation losses. Provision for (Benefit from) Income Taxes Provision for (benefit from) income taxes were $(599,000) and $(565,000) for the three and six months ended June 30, 2020, respectively, and $7,000 and $20,000 for the three and six months ended June 30, 2019, respectively. The effective tax rate was -21% for the three months ended June 30, 2020 compared with 1% for the three months ended June 30, 2019. The effective tax rate was -45% for the six months ended June 30, 2020 compared with -2% for the six months ended June 30, 2019. The change in effective tax rates for the three and six months ended June 30, 2020, relative to the comparative 2019 periods, was primarily attributable to deferred tax benefit related to the partial release of valuation allowance. This partial release is related to the projected increase in taxable income attributable to the Company’s new COVID testing capabilities. 23 Equity Loss in Investee Equity loss in investee was $193,000 and $149,000 in the three months ended June 30, 2020 and 2019, respectively, and $442,000 and $428,000 in the six months ended June 30, 2020 and 2019, respectively. Equity loss in investee relates to our 30% ownership interest in our joint venture, which we refer to as FF Gene Biotech. Liquidity and Capital Resources Liquidity and Sources of Cash We had $2.4 million in cash and cash equivalents and $63.9 million in marketable securities, consisting of corporate bonds and U.S. government agency securities, as of June 30, 2020 . We had $12.0 million in cash and cash equivalents and $58.3 million in marketable securities, consisting of corporate bonds, as of December 31, 2019. Since commencing operations in May 2012, our operations have been financed primarily by our founder, Chief Ex ecutive Officer and Chairman of our board of directors, Ming Hsieh, and in more recent periods, by cash from our operations and equity financings. Our primary uses of cash are to fund our operations 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. In addition, in connection with the establishment of FF Gene Biotech, we became obligated to contribute to FF Gene Biotech genetic sequencing and other equipment with a total cost of 60,000,000 RMB, over a five-year period. To date, we have purchased and contributed to FF Gene Biotech equipment with an aggregate fair value of $3.1 million, and as of June 30, 2020 , 39,300,000 RMB (or approximately $5.6 million U.S. dollars) of our total contribution obligations remain to be satisfied. Depending on the performance of FF Gene Biotech, this joint venture may never produce sufficient revenue to us to recover these capital and other investments, and could cause our revenue to decrease if any of our direct customers in Asia choose to order genetic tests from FF Gene Biotech instead of from us, any of which could negatively affect our liquidity and cash flows. In addition, although we have in the past made cash distributions for tax and other purposes to the equity holders of our predecessor, we do not expect to use our cash to make these or any other types of distributions or dividends in the foreseeable future. On August 30 2019, we entered into an Equity Distribution Agreement, or the Equity Distribution Agreement, with Piper Sandler & Co., or Piper, as sales agent, pursuant to which was subsequently amended on August 4, 2020. Pursuant to the Equity Distribution Agreement, we may, from time to time, sell through Piper shares of our common stock with an aggregate purchase price of up to $44.9 million. During the three and six months ended June 30, 2020, the Company did not sell any shares of its common stock pursuant to the Equity Distribution Agreement. Shares sold under the Equity Distribution Agreement are offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-233227) filed with the SEC on August 12, 2019 and declared effective on August 23, 2019, and a prospectus supplement and accompanying base prospectus filed with the Securities and Exchange Commission on August 30, 2019. On November 13, 2019, we entered into a Purchase Agreement with Piper, as representative of the several underwriters, pursuant to which we sold 2,673,750 shares of our common stock at a price of $10.51875 per share, with a public offering price of $11.25 per share. We received net proceeds of approximately $27.6 million, after deducting underwriting discounts and commissions and offering expenses paid or payable by us of approximately $2.4 million. The shares issued and sold in the underwritten offering were sold pursuant to a shelf registration statement registered under the Securities Act on a registration statement on Form S-3 (File No. 333-233227), and a prospectus supplement and accompanying base prospectus filed with the Securities and Exchange Commission on November 13, 2019. We believe our existing cash, along with proceeds from our equity financings, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. Much of the losses we have incurred in certain prior periods were attributable to a variety of non-cash charges, including equity-based compensation expenses. As a result, in spite of the losses we recorded during these periods, cash provided by continuing operations has been mostly positive since 2015 and has significantly contributed to our ability to meet our liquidity needs, including paying for capital expenditures. Additionally, if our business grows and we are able to achieve increased efficiencies and economies of scale in line with this growth, we expect increased revenue levels would increase our ability to rely on cash from our operations to support our business in future periods, even if our expenses also increase as a result of the growth of our business. Based on these factors, we anticipate that cash from our operations will continue to play a meaningful role in our ability to meet our liquidity requirements and pursue our business plans and strategies in the next 12 months and in the longer term. However, our expectations regarding the cash that may be provided by our operations and our cash needs in future periods could turn out to be wrong, in which case we may require additional financing to support our operations, as we do not presently have any commitments for future capital. For instance, 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 24 others, the amount and timing of sales of billable tests, 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 liqui dity 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 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. For example, the COVID-19 pandemic has recently caused extreme disruption and volatility in the global capital markets, which could reduce our ability to access capital. 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: Six Months Ended June 30, 2020 2019 (in thousands) Net cash (used in) provided by operating activities $ (3,043 ) $ 1,730 Net cash (used in) provided by investing activities $ (6,267 ) $ 689 Net cash (used in) provided by financing activities $ (223 ) $ 9 Operating Activities Cash used in operating activities in the six months ended June 30, 2020 was $3.0 million. The difference between net income and cash used in operating activities for the period was primarily due to increases of $7.4 million in accounts receivable mainly due to timing of collections from customers and increased revenue and $3.8 million in other current assets related to purchases of an increased amount of reagents and supplies and equipment purchased that will be contributed to FF Gene Biotech, partially offset by the effects of $2.0 million in equity-based compensation expenses, $1.1 million in the depreciation of assets and $442,000 in equity loss in investee. Cash provided by operating activities in the six months ended June 30, 2019 was $1.7 million. The difference between net loss and cash provided by operating activities for the period was primarily due to the effects of $1.3 million in equity-based compensation expenses, $1.0 million in the depreciation of assets and $428,000 in equity loss in investee. Cash provided by operating activities increased between periods primarily due to a $368,000 decrease in accounts receivable mainly due to timing of collections from customers. Investing Activities Cash used in investing activities in the six months ended June 30, 2020 was $6.3 million , which is primarily related to purchases of $12.4 million of marketable securities and purchases of $1.2 million of fixed assets consisting mainly of medical laboratory equipment, leasehold improvements, and computer hardware, partially offset by proceeds of $7.3 million related to maturities of marketable securities . Cash provided by investing activities in the six months ended June 30, 2019 was $689,000 , which primarily related to purchases of $10.2 million marketable securities, purchases of $633,000 fixed assets consisting mainly of computer hardware, and partially offset by maturity of $11.5 million of marketable securities. 25 Financing Activities Cash used in financing activities in the six months ended June 30, 2020 was $223,000, which primarily represents payment for costs related to our underwritten offering in November 2019. Cash provided by financing activities in the six months ended June 30, 2019 was minimal. Critical Accounting Policies and Use of Estimates This discussion and analysis is based on our condensed consolidated financial statements included in this report, which have been prepared in accordance with generally accepted accounting principles in the United States of America, 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 the potential impacts arising from the recent global pandemic related to COVID-19. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. 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. Except as set forth in Note 2 (Summary of Significant Accounting Policies) to our condensed consolidated financial statements included in this report, there have been no significant changes to our critical accounting policies and estimates as described in the 2019 Annual Report. The JOBS Act We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable to public companies that are not emerging growth companies, including an extended transition period to comply with new or revised accounting standards applicable to public companies. We have chosen to “opt out” of this extended transition period and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable. We will remain an emerging growth company until December 31, 2021, unless our gross revenue exceeds $1.07 billion in any fiscal year before that date, we issue more than $1.0 billion of non-convertible debt in any three-year period before that date or the market value of our common stock held by non-affiliates exceeds $700.0 million as of the last business day of the second fiscal quarter of any f iscal year before that date. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 26 Item 3. Quantitative and Q ualitati ve Disclosures About Market Risk. Not applicable.