What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-10 compared with 2021-05-07 · 102 added, 82 removed, 136 unchanged (57% of the section changed)

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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 technology platform, which integrates sophisticated data comparison and suppression algorithms, adaptive learning software, advanced genetic diagnostics tools and integrated laboratory processes, allows us to offer a test menu with expansive genetic coverage.

Our technology platform, which integrates sophisticated data comparison and suppression algorithms, adaptive learning software, in comparison to our competitors advanced genetic diagnostics tools and integrated laboratory processes, allows us to offer a test menu with expansive genetic coverage.

We believe the comprehensive data output and high detection rates of our tests, both made possible by this expansive genetic coverage, provide physicians with information they can readily incorporate into treatment decisions for their patients, which we refer to as clinical actionability.

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Since March 2020, we have offered several tests for the detection of SARS-CoV-2, the virus that causes COVID-19, including NGS and RT-PCR-based tests.

To date, we have processed orders for our COVID-19 tests from a variety of customers, including

governmental bodies, municipalities, and large corporations.

In 2020, we established and operated COVID-19 testing sites for certain customers including the County of Los Angeles and the New York City public school system.

To date, we have processed orders for our COVID-19 tests from a variety of customers, including governmental bodies, municipalities, and large corporations.

In 2020, we established and operated COVID-19 testing sites for certain municipal customers , including the County of Los Angeles and the New York City public school system.

We also offer at-home COVID-19 testing services through our Picture Genetics platform that is used by many customers, including individuals and large organizations, such as the New York City Test and Trace program.

We offer tests at competitive prices, averaging approximately $95 per billable test delivered in the first quarter of 2021, and at a lower cost to us than many of our competitors, averaging approximately $20 per billable test delivered in the first quarter of 2021.

Our volume has grown rapidly since our commercial launch, with 3.8 million billable tests delivered in the first quarter of 2021, compared to 13,000 billable tests delivered in the first quarter of 2020.

As of March 31, 2021, an aggregate of over 8.3 million billable tests have been delivered to over 1,400 customers since launching our first commercial genetic tests in 2013.

We offer tests at competitive prices, averaging approximately $96 per billable test delivered in the six months ended June 30, 2021, and at a lower cost to us than many of our competitors, averaging approximately $21 per billable test delivered in the six months ended June 30, 2021.

Our volume has grown rapidly since our commercial launch, with 1.6 million and 5.3 million billable tests delivered in the three and six months ended June 30, 2021, compared to 181,000 and 194,000 billable tests delivered in the three and six months ended June 30, 2020, respectively.

As of June 30, 2021, an aggregate of approximately 9.9 million billable tests have been delivered to over 1,500 customers since launching our first commercial genetic tests in 2013.

We have experienced compound quarterly growth of 85% in the number of billable tests delivered in our last eight completed fiscal quarters.

We recorded revenue and net income of $359.4 million and $200.7 million, respectively, in the first quarter of 2021, compared to revenue and net loss of $7.8 million and $2.0 million, respectively, in the first quarter of 2020.

We achieved profitability in the first half of 2017, the second and third quarters of 2019, the second, third and fourth quarters of 2020 and the first quarter of 2021 , but we have recorded losses in all other periods since our inception.

We recorded revenue and net income of $153.6 million and $79.8 million, respectively, in the three months ended June 30, 2021, compared to revenue and net income of $17.3 million and $3.3 million, respectively, in the three months ended June 30, 2020.

We recorded revenue and net income of $513.0 million and $280.5 million, respectively, in the six months ended June 30, 2021, compared to revenue and net income of $25.0 million and $1.4 million, respectively, in the six months ended June 30, 2020.

We achieved profitability in the first half of 2017, the second and third quarters of 2019, the second, third and fourth quarters of 2020, and the first and second quarter of 2021, but we have recorded losses in all other periods since our inception.

COVID-19 Considerations

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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, circumstances regarding the emergence and prevalence of COVID-19 variants, the success of vaccination campaigns (both in the United States and internationally), the actions taken to contain COVID-19 or treat it and related impacts on local, regional, national and international markets and supply chains.

In the first quarter of 2021 and for the entirety of the COVID-19 pandemic to such point, we continued to operate as an essential business in response to COVID-19.

During the first quarter of 2021 and to date, the COVID-19 pandemic has not had a negative impact on our consolidated operating results.

In the first half of 2021 and for the entirety of the COVID-19 pandemic to this point, we continued to operate as an essential business in response to COVID-19.

During the first half of 2021 and to date, the COVID-19 pandemic has not had a negative impact on our consolidated operating results.

Rather, we have recognized significant revenue growth in connection with sales of our COVID-19 tests.

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 our ability to continue to offer our COVID‑19 tests with competitive results and turn-around times without any significant negative operational impact from the COVID-19 pandemic will depend in part on our, and any of our third‑party service providers’ and suppliers’ ability to protect our respective employees and supply chains.

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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/or supply chain.

The COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of March 31, 2021.

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 March 31, 2021.

The COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of June 30, 2021.

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, 2021.

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.

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Three Months Ended

Six Months Ended

Statement of Operations Data:

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Total operating expenses

Operating income (loss)

Operating income

Interest and other income, net

Income (loss) before income taxes and equity loss in investee

Provision for income taxes

Income (loss) before equity loss in investee

Income before income taxes, gain on

equity method investment and

equity loss in investee

Net income (loss)

Provision for (benefit from) income

Income before gain on equity method

and equity loss in investee

Gain on equity method investment

Equity loss in investee

Net income from consolidated

Net loss attributable to noncontrolling

Net income attributable to Fulgent

Other Operating Data:

Billable tests delivered ( 1)

Average price per billable test delivered (2)

Average price per billable test

delivered ( 2)

Cost per billable test delivered ( 3)

* Percentage not meaningful.

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.

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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.

Revenue increased $351.7 million, or 4536%, from $7.8 million in the first quarter of 2020 to $359.4 million in the first quarter of 2021 .

Revenue increased $136.4 million, or 790%, from $17.3 million in the three months ended June 30, 2020 to $153.6 million in the three months ended June 30, 2021 , and increased $488.0 million, or 1951%, from $25.0 million in the six months ended June 30, 2020 to $513.0 million in the six months ended June 30, 2021.

The increase in revenue between periods was primarily due to increase in the number of billable tests delivered, primarily related to the increased orders for our 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 $494, or 84%, from $589 in the first quarter of 2020 to $95 in the first quarter of 2021 .

The decrease was due to (i) lower price-points for the mix of tests we delivered, in the first quarter of 2021 versus 2020, including our COVID-19 tests launched in 2020, (ii) the mix of customers ordering tests in this period, who may order tests at different rates depending on the arrangements we have negotiated with them , 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 first quarter of 2021.

The average price of the billable tests we delivered increased from $96 in the three months ended June 30, 2020 to $99 in the three months ended June 30, 2021, and decreased from $129 in the six months ended June 30, 2020 to $96 in the six months ended June 30, 2021.

The decreases in the six months period were due to (i) lower price-points for the mix of tests we delivered, including COVID-19 tests launched in 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 (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, 2021 .

Revenue from non-U.S.

sources decreased $222,000, or 11%, from $2.1 million in the first quarter of 2020 to $1.9 million in the first quarter of 2021 .

The decrease in revenue from non-U.S.

sources between periods was primarily due to decreased sales of our traditional genetic testing services to customers in foreign countries adversely affected by the COVID-19 pandemic .

The number of billable tests we delivered increased 3.8 million , from 13, 000 in the first quarter of 20 20 to 3.8 million in the first quarter of 20 2 1 .

The increase was primarily attributable to the expansion of our test menu, including our COVID-19 tests launched in 2020, 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, the County of Los Angeles, contributed 25% of our total revenue in the first quarter of 2021, and no customer contributed 10% or more of our total revenue in the first quarter of 2020.

sources increased $2.6 million, or 233%, from $1.1 million in the three months ended June 30, 2020 to $3.8 million in the three months ended June 30, 2021, and increased $2.4 million, or 74%, from $3.2 million in the six months ended June 30, 2020 to $5.6 million in the six months ended June 30, 2021 .

The increases in revenue from non-U.S.

sources between periods were primarily due to increased sales of our traditional genetic testing services to customers in foreign countries.

The number of billable tests we delivered increased 1.4 million, from 181,000 in the three months ended June 30, 2020 to 1.6 million in the three months ended June 30, 2021, and increased 5.1 million, from 194,000 in the six months ended June 30, 2020 to 5.3 million in the six months ended June 30, 2021 .

The increases were primarily attributable to the expansion of our test menu, including our COVID-19 tests launched in 2020, and increases in sales to certain of our existing and new customers.

After aggregating customers that are under common control or are affiliates, two customers contributed 20% and 16% of the Company’s revenue for the three months ended June 30, 2021, respectively.

Two customers contributed 24% and 11% of the Company’s revenue for the six months ended June 30, 2021, respectively.

Cost of Revenue

Cost of revenue increased $70.0 million, or 1726%, from $4.1 million in the first quarter of 2020 to $74.1 million in the first quarter of 2021.

The increase was primarily due to increases of $42.9 million in reagent and supply expenses related to increased billable tests delivered, $14.3 million in consulting and outside labor expense related to increased outside labor for production in the current period, $5.1 million in personnel costs including equity-based compensation related to increased headcount and market price of the Company’s stock, $3.9 million in software expense related to usage of COVID-19 testing software, $1.3 million in depreciation expenses related to medical lab equipment purchased for our COVID-19 tests, and $1.1 million in facilities primarily related to certain modifications made to our mini vans used for our COVID-19 business.

Cost per billable test delivered decreased $288, or 94%, from $308 in the first quarter of 2020 to $20 in the first quarter of 2021 primarily attributable to our expanded test menu, including COVID-19 tests in 2020 which have a lower cost than our genetics tests.

Our cost per billable test also 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 $281.7 million, from $3.7 million in the first quarter of 2020 to $285.4 million in the first quarter of 2021 .

The increase in gross profit was primarily due to an increase in revenue between periods that exceeded the increase in cost of revenue over the same period.

Our gross profit as a percentage of revenue, or gross margin, increased from 47.7% to 79.4% between periods due in part to the increase in revenue and decreases in our cost per billable test and cost of revenue described above.

Cost of revenue increased $28.1 million, or 365%, from $7.7 million in the three months ended June 30, 2020 to $35.9 million in the three months ended June 30, 2021 .

The increase was primarily due to increases of $10.4 million in consulting and outside labor expense related to increased outside labor for production in the current period, $8.8 million in reagent and supply expenses related to increased billable tests delivered, $4.1 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock, $2.2 million in software expense related to usage of COVID-19 testing software, and $1.6 million in depreciation expenses related to medical lab equipment purchased for our COVID-19 tests.

Cost of revenue increased $98.2 million, or 834%, from $11.8 million in the six months ended June 30, 2020 to $109.9 million in the six months ended June 30, 2021.

The increase was primarily due to increases of $51.7 million in reagent and supply expenses related to increased billable tests delivered, $24.7 million in consulting and outside labor expense related to increased outside labor for production in the current period, $9.1 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock , $6.2 million in software expense related to usage of COVID-19 testing software, $2.9 million in depreciation expenses related to medical lab equipment purchased for our COVID-19 tests, and $1.6 million in facilities primarily related to certain modifications made to our mini vans used for our COVID-19 business.

Cost per billable test delivered decreased $20, or 47%, from $43 in the three months ended June 30, 2020 to $23 in the three months ended June 30, 2021 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 $40, or 66%, from $61 in the six months ended June 30, 2020 to $21 in the six months ended June 30, 2021 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 COVID-19 tests in 2020 which have a lower cost than our genetics 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 $ 108.2 million , from $ 9 .5 million in the three months ended June 30 , 20 20 to $ 117.8 million in the three months ended June 30 , 202 1 , and increased $ 389.9 million , from $ 13.

2 million in the six months ended June 30 , 20 20 to $ 403.1 million in the six months ended June 30 , 202 1 .

Our gross profit as a percentage of revenue, or gross margin, in creased from 55.3 % to 76.7% between three months ended June 30 , 20 20 and 20 2 1 , and increased from 52.9 % to 78.6% between six months ended June 30 , 20 20 and 20 2 1 , due in part to the increase in revenue and decreases in our cost per billable test and cost of revenue described above.

Research and Development

Research and development expenses increased $3.4 million, or 174%, from $2.0 million in the first quarter of 2020 to $5.4 million in the first quarter of 2021.

The increase was primarily due to increases of $1.6 million in personnel costs including equity-based compensation related to increased headcount and market price of the Company’s stock, and $1.5 million in reagent and supply expenses related to increased reagent usage for COVID-19 research.

Research and development expenses increased $3.5 million, or 187%, from $1.8 million in the three months ended June 30, 2020 to $5.3 million in the three months ended June 30, 2021.

The increase was primarily due to increases of $2.6 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock and $750,000 in donation to COVID-19 research fund and colorectal cancer research.

Research and development expenses increased $6.9 million, or 180%, from $3.8 million in the six months ended June 30, 2020 to $10.7 million in the six months ended June 30, 2021.

The increase was primarily due to increases of $4.2 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock , $1.5 million in reagent and supply expenses related to increased reagent usage for COVID-19 research, and $750,000 in donation to a COVID-19 research fund and colorectal cancer research.

Selling and Marketing

Selling and marketing expenses increased $3.4 million, or 214% from $1.6 million in the first quarter of 2020 to $5.0 million in the first quarter of 2021.

The increase was primarily due to increases of $2.2 million in personnel costs including equity-based compensation related to increased headcount and market price of the Company’s stock, and $877,000 in consulting and outside labor expense and $389,000 in marketing cost related to COVID-19 testing related marketing projects in the current period.

Selling and marketing expenses increased $2.0 million, or 60% from $3.3 million in the three months ended June 30, 2020 to $5.2 million in the three months ended June 30, 2021.

The increase was primarily due to increases of $2.4 million in personnel costs including equity-based compensation expense related to increased commission expense and market price of the Company’s stock, and $818,000 in consulting and outside labor expense related to COVID-19 marketing projects in the current period, partially offset by $1.5 million in marketing supplies, including kits to potential customers in the prior period.

Selling and marketing expenses increased $5.4 million, or 111% from $4.9 million in the six months ended June 30, 2020 to $10.2 million in the six months ended June 30, 2021.

The increase was primarily due to increases of $4.7 million in personnel costs including equity-based compensation expense related to increased commission expense and market price of the Company’s stock, and $1.7 million in consulting and outside labor expense and $472,000 in marketing expense related to COVID-19 testing related marketing projects in the current period, partially offset by $1.7 million in marketing supplies, including kits to potential customers in the prior period.

General and Administrative

General and administrative expenses increased $6.0 million, or 293%, from $2.0 million in the first quarter of 2020 to $8.0 million in the first quarter of 2021.

The increase was primarily due to increases of $2.5 million in software and licensing related to the increased number COVID-19 tests, $1.2 million in personnel costs including equity-based compensation related to increased headcount and market price of the Company’s stock, $943,000 in bad debt expenses related to additional provision for credit losses in the current period, and $363,000 in legal and professional fees related to professional services obtained in the current period.

Interest and Other Income, Net

Net interest income was $230,000 and $326,000 in the first quarters of 2021 and 2020, respectively.

General and administrative expenses increased $6.5 million, or 363% from $1.8 million in the three months ended June 30, 2020 to $8.3 million in the three months ended June 30, 2021.

The increase was primarily due to increases of $2.2 million in bad debt expense related to additional provision for credit losses in the current period, $1.5 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock, $515,000 in legal and professional fees related to professional services obtained in the current period, $438,000 in accounting fees related to accounting services for public offering and internal control, $340,000 on loss in disposal of fixed assets, $225,000 in insurance related to the increase cost of liabilities and director and officers insurance, and $206,000 in consulting and outside labor expense related to the increased insurance billing.

General and administrative expenses increased $12.5 million, or 326% from $3.8 million in the six months ended June 30, 2020 to $16.3 million in the six months ended June 30, 2021.

The increase was primarily due to increases of $3.1 million in bad debt expense related to additional provision for credit losses in the current period, $2.7 million in personnel costs including equity-based compensation related to increased headcount and market price of the Company’s stock, $2.6 million in software and licensing related to the increased number of COVID-19 tests, $878,000 in legal and professional fees related to professional services obtained in the current period, $358,000 in accounting fees related to accounting services for public offering and internal control, $353,000 in loss on disposal of fixed assets, $347,000 in other state tax related to the increase in revenue, $345,000 in insurance related to the increase cost of liabilities and director and officers insurance, and $345,000 in consulting and outside labor expense related to the increased insurance billing.

Interest Income and Other Income ( Losses )

Interest income was $566,000 and $249,000 in the three months ended June 30, 2021 and 2020, respectively, and $796,000 and $575,000 in the six months ended June 30, 2021 and 2020, respectively.

This income related to interest earned on various investments in marketable securities including holding gain or loss on marketable equity securities .

Other income (expense) was not significant for the first quarters of 2021 and 2020.

The primary components of other income (expense) for 2021 and 2020 were rental income net of rental expenses and foreign currency exchange gain (losses).

Provision for Income Taxes

Provision for income taxes was $66.5 million and $34,000 for the first quarters of 2021 and 2020, respectively.

The effective tax rate was 25% and -2% for the first quarters of 2021 and 2020, respectively.

The change in effective tax rate for the first quarter of 2021, relative to 2020, was primarily attributable to a significant increase in income for the first quarter of 2021, partially offset by increased windfall tax deductions related to stock-based compensation.

Equity Loss in Investees

No equity losses were recorded in the first quarter of 2021 due to impairment loss recorded in 2020.

Equity loss in investee related to our 30% ownership interest in FF Gene Biotech was $249,000 in the first quarter of 2020.

Other income (expense) was not significant in the three or six months ended June 30, 2021 and 2020, respectively.

The primary components of other losses were rental income net of rental expenses and foreign currency exchange gain (loss).

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes were $23.6 million and $90.1 million for the three and six months ended June 30, 2021, respectively, and $(599,000) and $(565,000) for the three and six months ended June 30, 2020, respectively.

The effective tax rate was 24% for the three months ended June 30, 2021 compared with -21% for the three months ended June 30, 2020.

The effective tax rate was 25% for the six months ended June 30, 2021 compared with -45% for the six months ended June 30, 2020.

The increase in effective tax rates for the three and six months ended June 30, 2021, relative to the comparative 2020 periods, was primarily attributable to a significant increase in income for the three and six months ended June 30, 2021, partially offset by increased windfall tax deductions related to stock-based compensation.

Gain on Equity Method Investment

The Company recognized a gain of $3.7 million in the three and six months ended June 30, 2021 related to the preexisting equity interest at FF Gene Biotech as a result of remeasuring to fair value its 30 % equity interest held before the FF Gene Biotech Acquisition .

The fair value of the preexisting equity interest was determined based on the characteristics before consummating the FF Gene Biotech Acquisition and estimated by applying income approach and utilized the discounted cash flow method.

There was no such gain on equity method investment in the three and six months ended June 30, 2020.

Equity Loss in Investee

Equity loss in investee was $193,000 and $422,000 in the three and six months ended June 30, 2020, respectively.

Equity loss in investee in 2020 relates to our 30% ownership interest in FF Gene Biotech.

Net Loss Attributable to Noncontrolling Interest

Net loss attributable to noncontrolling interest represents net loss of FF Gene Biotech attributable to the minority shareholders, Xilong Scientific and FJIP, which was not significant in the three and six months ended June 30, 2021.

Liquidity and Capital Resources

Liquidity and Sources of Cash

We had $151.5 million and $87.4 million in cash and cash equivalents as of March 31, 2021 and December 31, 2020, respectively.

We had $545.9 million and $344.4 million in marketable securities, primarily consisting of equity securities and corporate bonds , as of March 31, 2021 and December 31, 2020, respectively.

We had $100.5 million in cash and cash equivalents and $676.6 million in marketable securities, consisting of equity securities, corporate bonds, municipal bonds, and U.S.

government agency securities, as of June 30, 2021 .

We had $87.4 million in cash and cash equivalents and $344.4 million in marketable securities, consisting of corporate bonds, as of December 31, 2020.

Initially after commencing operations in May 2012, our operations were financed primarily by our founder, Chief Executive 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 use of cash is to fund our operations as we continue to invest in and seek to grow our business.

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 April 2017, 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 60.0 million renminbi, or RMB, over a five-year period, previously three-year per original agreement and amended in April 2019.

To date, we have purchased and contributed to FF Gene Biotech equipment with an aggregate fair value of $4.5 million, and as of March 31, 2021, 29.7 million RMB (or approximately $4.5 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 flow.

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 2019 Equity Distribution Agreement, with Piper, as sales agent, which was subsequently amended on August 4, 2020.

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During the year ended December 31, 2020, we sold an aggregate of 2.0 million shares of our common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $48.70 per share, which resulted in $99.1 million of net proceeds to the Company.

During the first quarter of 2021, we sold approximately 583,000 shares of our common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $52.00 per share, which resulted in $30.3 million of net proceeds to the Company .

During the three months ended June 30, 2021, the Company sold approximately 378,000 shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $73.75, which resulted in $27.9 million of net proceeds to the Company.

During the six months ended June 30, 2021, the Company sold approximately 961,000 shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $60.56, which resulted in $58.2 million of net proceeds to the Company.

Shares sold under the November 2020 Equity Distribution Agreement were offered and sold pursuant to the Company’s registration statement on Form S-3 (File No.

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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.

Additional funding may not be available to us when needed, on acceptable terms or

For example, the COVID-19 pandemic has caused 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.

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The following table summarizes our cash flows for each of the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

Cash provided by operating activities

Cash used in investing activities

Cash provided by (used in) financing activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Operating Activities

Cash provided by operating activities in the first quarter of 2021 was $233.2 million.

The difference between net income and cash provided by operating activities for the period was primarily due to the effects of $3.0 million in equity-based compensation expenses and $1.9 million in the depreciation of assets.

Cash provided by operating activities increased between periods primarily due to increases of $67.2 million in income tax payable due to a significant increase in income, $16.8 million in customer deposit due to payments received from customers in excess of their outstanding trade accounts receivable balances, and $3.9 million in other current liabilities related to increased payroll liabilities, partially offset by the negative impact of increases of $34.6 million in trade accounts receivable mainly due to timing of collections from customers and insurance companies and $9.1 million in other current and long-term assets related to additions in reagents and supplies, and decreases of $12.6 million in contract liabilities due to increased revenue recognized in the current period, and $6.3 million in accounts payable mainly due to timing of payments.

Cash provided by operating activities in the first quarter of 2020 was $1.4 million.

The difference between net loss and cash provided by operating activities for the period was primarily due to the effects of $924,000 in equity-based compensation expenses and $569,000 in the depreciation of assets.

Cash provided by operating activities increased between periods primarily due to an increase of $1.9 million in accounts payable mainly due to timing of payments, partially offset by an increase of $924,000 in other current and long-term assets primarily related to increased reagents and supplies.

Cash provided by operating activities in the six months ended June 30, 2021 was $309.3 million.

The difference between net income and cash provided by operating activities for the period was primarily due to the effects of $6.5 million in equity-based compensation expenses and $4.3 million in the depreciation and amortization.

Cash provided by operating activities increased between periods primarily due to an increase of $44.7 million in customer deposit due to payments received from customer in excess of their outstanding trade accounts receivable balances, and a decrease of $32.5 million in trade receivable due to timing of payments, and partially offset by negative impact of decreases of $26.9 million in income tax payable due to the estimated tax payments made during the current period, $19.7 million in contract liabilities due to timing of payments, $10.3 million in accounts payable due to the timing of payments, and an increase of $6.0 million in other current and long-term assets related to additions in reagents and supplies.

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.

Investing Activities

Cash used in investing activities in the first quarter of 2021 was $216.5 million , which primarily related to purchase of $219.5 million marketable securities, purchase of $11.5 million fixed assets consisting mainly of medical lab equipment, and partially offset by maturity of $14.5 million marketable securities.

Cash used in investing activities in the first quarter of 2020 was $3.9 million, which primarily related to purchase of $8.0 million marketable securities, purchase of $796,000 fixed assets consisting mainly of medical lab equipment, and partially offset by maturity of $4.9 million marketable securities.

Cash used in investing activities in the six months ended June 30, 2021 was $371.5 million , which primarily related to purchases of $424.8 million of marketable securities, $18.5 million related to a business acquisition, and purchase of $14.4 million of fixed assets consisting mainly of medical laboratory equipment and building construction, partially offset by $51.7 million related to sales of marketable securities and proceeds of $34.5 million related to maturities of marketable securities .

Cash used in investing activities in the six months ended June 30, 2020 was $6.3 million, which 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.

Financing Activities

Cash provided by the first quarter of 2021 was $47.3 million, which primarily represents net proceeds from sale of our common stock made pursuant to the November 2020 Equity Distribution Agreement.

Cash used in the first quarter of 2020 was $164,000, 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, 2021 was $75.2 million, which primarily represents net proceeds from 2020 Equity Distribution Agreement.

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.

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.

This discussion and analysis is based on our condensed consolidated financial statements included in this report, which have been prepared in accordance with U.S.

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

9 unchanged sentences

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 date of which the Company qualifies as a “large accelerated filer.”.

We expect to remain an emerging growth company until December 31, 2021, unless we issue more than $1.0 billion of non-convertible debt in any three-year period before that date.

Off-Balance Sheet Arrangements

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis