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 results of operations included in our annual report on Form 10-K for our fiscal year ended December 31, 2020 filed with the SEC on March 8, 2021, or the 2020 Annual Report. 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 after 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 large-scale COVID-19 testing services and comprehensive genetic testing to provide 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. Combining NGS with our technology platform, we perform full-gene sequencing with deletion/duplication analysis in single-gene tests; pre-established, multi-gene, disease-specific panels; and customized panels that can be tailored to meet specific customer needs. 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, 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. In addition, our technology platform facilitates our ability to perform customized genetic tests using our expansive library of genes, and we believe this flexibility increases the utility of the genetic data we produce. Further, our technology platform provides us with operating efficiencies that help lower our internal costs, which allows us to offer our tests at accessible price points. As a result, our efforts to build and continually enhance our technology platform allow us to deliver comprehensive, adaptable, clinically actionable and affordable genetic analysis while maintaining a low cost per billable test, enabling us to efficiently meet the needs of our growing base of customers. 23 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 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 $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 $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 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, 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 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. 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. 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/or supply chain. 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. 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 2020 Annual Report. 24 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 2020 Annual Report. Three Months Ended Six Months Ended June 30, $ % June 30, $ % 2021 2020 Change Change 2021 2020 Change Change Statement of Operations Data: (dollars and billable tests in thousands, except per billable test data) Revenue $ 153,616 $ 17,265 $ 136,351 790 % $ 513,045 $ 25,018 $ 488,027 1,951 % Cost of revenue 35,858 7,717 28,141 365 % 109,933 11,774 98,159 834 % Gross profit 117,758 9,548 108,210 1,133 % 403,112 13,244 389,868 2,944 % Operating expenses: Research and development 5,312 1,849 3,463 187 % 10,734 3,827 6,907 180 % Selling and marketing 5,219 3,260 1,959 60 % 10,227 4,857 5,370 111 % General and administrative 8,329 1,799 6,530 363 % 16,331 3,834 12,497 326 % Total operating expenses 18,860 6,908 11,952 173 % 37,292 12,518 24,774 198 % Operating income 98,898 2,640 96,258 3,646 % 365,820 726 365,094 50,288 % Interest and other income, net 604 275 329 120 % 886 516 370 72 % Income before income taxes, gain on equity method investment and equity loss in investee 99,502 2,915 96,587 3,313 % 366,706 1,242 365,464 29,425 % Provision for (benefit from) income taxes 23,589 (599 ) 24,188 4,038 % 90,102 (565 ) 90,667 16,047 % Income before gain on equity method and equity loss in investee 75,913 3,514 72,399 2,060 % 276,604 1,807 274,797 15,207 % Gain on equity method investment 3,734 — 3,734 * 3,734 — 3,734 * Equity loss in investee — (193 ) 193 100 % — (442 ) 442 100 % Net income from consolidated operations 79,647 3,321 76,326 2,298 % 280,338 1,365 278,973 20,438 % Net loss attributable to noncontrolling interests 165 — 165 * 165 — 165 * Net income attributable to Fulgent $ 79,812 $ 3,321 $ 76,491 2,303 % $ 280,503 $ 1,365 $ 279,138 20,450 % Other Operating Data: Billable tests delivered ( 1) 1,559 181 1,378 761 % 5,333 194 5,139 2,649 % Average price per billable test delivered ( 2) $ 99 $ 96 $ 3 3 % $ 96 $ 129 $ (33 ) (26 %) Cost per billable test delivered ( 3) $ 23 $ 43 $ (20 ) (47 %) $ 21 $ 61 $ (40 ) (66 %) * Percentage not meaningful. (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. 25 Revenue 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 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 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 $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. 26 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 $3.5 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 $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 $6.5 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. 27 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 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 $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 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. 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. Pursuant to the 2019 Equity Distribution Agreement, we offered and sold an aggregate of 104,000 shares of our common stock at a weighted-average net selling price of $9.37 per share, which resulted in $979,000 of net proceeds to the Company during the year ended December 31, 2019, and we sold an aggregate of 1.1 million shares of our common stock at a weighted-average net selling price of $38.50 per share, which resulted in $42.7 million of net proceeds to the Company during the year ended December 31, 2020. Shares sold under the 2019 Equity Distribution Agreement are offered and sold pursuant to the Company’s 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 prospectus supplements and accompanying base prospectus filed with the SEC on August 30, 2019, May 6, 2020 and August 5, 2020. 28 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 $10.5 2 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 the Company’s registration statement on Form S-3 (File No. 333-233227), and a prospectus supplement and accompanying base prospectus filed with the SEC on November 13, 2019. On September 25, 2020, we entered into the September 2020 Equity Distribution Agreement, with Piper as sales agent, pursuant to which we offered and sold an aggregate of 2.8 million shares of our common stock at a weighted-average net selling price of $42.90 per share, which resulted in $122.1 million of net proceeds to the Company. Shares sold under the September 2020 Equity Distribution Agreement were offered and sold pursuant to the Company’s registration statement on Form S-3 (File No. 333-239964) filed with the SEC on July 21, 2020, as amended on August 5, 2020, and declared effective on August 12, 2020, and a prospectus supplement and accompanying base prospectus filed with the SEC on September 25, 2020. On November 20, 2020, we entered into the November 2020 Equity Distribution Agreement, with Piper, Oppenheimer & Co. Inc., and BTIG LLC, as sales agents, pursuant to which we may offer and sell, from time to time through Piper, shares of our common stock having an aggregate offering price of up to $175.0 million. Piper may receive a commission of up to 3% of the gross proceeds received by the Company for sales pursuant to the November 2020 Equity Distribution Agreement. 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 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. 333-239964) filed with the SEC on July 21, 2020, as amended on August 5, 2020, and declared effective on August 12, 2020, and a prospectus supplement and accompanying base prospectus filed with the SEC on November 20, 2020. We believe our existing cash, cash equivalent, short-term marketable securities, along with cash from operations and 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 continues to grow 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 during 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 others, factors relating to the ongoing COVID-19 pandemic, 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 liquidity expectations are correct, we may still seek to raise additional capital through securities offerings, credit facilities or other debt financings, asset sales or collaborations or licensing arrangements. If we raise additional funds by issuing equity securities, our existing stockholders could experience substantial dilution. Additionally, any preferred stock we issue could provide for rights, preferences or privileges senior to those of our common stock, and our issuance of any additional equity securities, or the possibility of such an issuance, could cause the market price of our common stock to decline. The terms of any debt securities we issue or borrowings we incur, if available, could impose significant restrictions on our operations, such as limitations on our ability to incur additional debt or issue additional equity or other restrictions that could adversely affect our ability to conduct our business, and would result in increased fixed payment obligations. If we seek to sell assets or enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms or relinquish or license to a third party our rights to important or valuable technologies or tests we may otherwise seek to develop ourselves. Moreover, we may incur substantial costs in pursuing future capital, including investment banking, legal and accounting fees, printing and distribution expenses and other similar costs. Additional funding may not be available to us when needed, on acceptable terms or 29 at all. 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. 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, 2021 2020 (in thousands) Net cash provided by (used in) operating activities $ 309,290 $ (3,043 ) Net cash used in investing activities $ (371,496 ) $ (6,267 ) Net cash provided by (used in) financing activities $ 75,240 $ (223 ) Operating Activities 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 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 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. 30 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 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, our 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 2020 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 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 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. 31 Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.