What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-08-10 · 264 added, 163 removed, 497 unchanged (46% of the section changed)

3 unchanged sentences

(in thousands, except par value data)

September 30,

Current assets

2 unchanged sentences

Trade accounts receivable, net of allowance for credit losses of $ 6,893 and $ 1,898

as of June 30, 2021 and December 31, 2020, respectively

as of September 30, 2021 and December 31, 2020, respectively

Other current assets

1 unchanged sentence

Marketable securities, long-term

Redeemable preferred stock investment

Fixed assets, net

17 unchanged sentences

Common stock, $ 0.0001 par value per share, 50,000 shares authorized, 29,829 and

28,178 shares issued and outstanding at June 30, 2021 and December 31, 2020,

28,178 shares issued and outstanding at September 30, 2021 and December 31, 2020,

Preferred stock, $ 0.0001 par value per share, 1,000 shares authorized, no shares issued

or outstanding at June 30, 2021 and December 31, 2020

or outstanding at September 30, 2021 and December 31, 2020

Additional paid-in capital

9 unchanged sentences

(in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

3 unchanged sentences

General and administrative

Amortization of acquisition-related intangible assets

Total operating expenses

1 unchanged sentence

Interest and other income, net

Income before income taxes, gain on

equity method investment and equity loss in investee

Provision for (benefit from) income taxes

Income before gain on equity method investment

Income before income taxes, gain (loss) on

equity method investments and equity loss in investee

Provision for income taxes

Income before gain (loss) on equity method investments

and equity loss in investee

Gain on equity method investment

Gain (loss) on equity-method investments

Equity loss in investee

Net income from consolidated

Net income from consolidated operations

Net loss attributable to noncontrolling

6 unchanged sentences

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income from consolidated operations

4 unchanged sentences

Net loss attributable to noncontrolling interest

Foreign currency translation gain attributable

Foreign currency translation loss attributable

to noncontrolling interest

38 unchanged sentences

Balance at June 30, 2021

Equity-based compensation

Exercise of common stock

Restricted stock awards

Common stock withholding

for employee tax

Other comprehensive

Net income (loss)

Balance at September 30, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

19 unchanged sentences

Balance at June 30, 2020

Equity-based compensation

Exercise of common stock options

Restricted stock awards

Issuance of common stock at an

average of $ 38.50 per share, net

Issuance of common stock at an

average of $ 39.24 per share, net

Other comprehensive loss

Balance at September 30, 2020

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flow from operating activities:

Net income from consolidated

Adjustments to reconcile net income to net cash provided (used in) by operating activities:

Net income from consolidated operations

Adjustments to reconcile net income to net cash provided by operating activities:

Equity-based compensation

6 unchanged sentences

Unrecognized tax benefits

Holding loss on equity securities

Net loss on marketable securities

Equity loss in investee

Gain on equity method investment

Gain (loss) on equity-method investments

Changes in operating assets and liabilities:

6 unchanged sentences

Customer deposit

Operating lease liabilities

Net cash provided by (used in) operating activities

Operating and finance lease liabilities

Net cash provided by operating activities

Cash flow from investing activities:

2 unchanged sentences

Purchase of marketable securities

Purchase of redeemable preferred stock

Proceeds from sale of marketable securities

1 unchanged sentence

Acquisition of businesses, net of cash acquired

Investment in equity-method investees

Net cash used in investing activities

Cash flow from financing activities:

Proceeds from (payment for) public offerings of common stock, net of issuance costs

Proceeds from public offerings of common stock, net of issuance costs

Proceeds from noncontrolling interest

Proceeds from exercise of stock options

Principal paid for finance lease

Common stock withholding for employee tax obligations

Borrowing under margin account

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Supplemental disclosures of non-cash investing and financing activities:

Purchases of marketable securities in other current liabilities

Contingent consideration for business acquisition included in other current liabilities

Purchases of fixed assets in accounts payable

Operating lease right-of-use assets obtained in exchange for lease liabilities

Operating lease right-of-use assets reduced due to lease modification

Operating lease right-of-use assets reduced due to lease modification and termination

Public offerings proceeds included in other current assets

Public offerings costs included in accounts payable

17 unchanged sentences

The Company has received an Emergency Use Authorization, or EUA, from the United States, or U.S., Food and Drug Administration, or 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 the at-home testing service through Picture Genetics.

The Company’s at-home testing service for COVID-19 and RT-PCR-based test have been granted an EUA by the FDA only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens.

The Company’s at-home testing service for COVID-19 and RT-PCR-based test has been granted an EUA by the FDA only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens.

In August 2021, the Company acquired Cytometry Specialists, Inc., or CSI, to expand the Company’s presence and capabilities in somatic molecular diagnostics and cancer testing.

The Company believes its test menu offers more genes for testing than its competitors in today’s market, which enables it to provide expansive options for test customization and clinically actionable results.

21 unchanged sentences

Gains and losses from these translations are recognized in foreign currency translation included in accumulated other comprehensive income (loss) in the accompanying Condensed Consolidated Statements of Stockholders’ Equity.

Gains from these translations were not significant in the three and six months ended June 30, 2021 and three months ended June 30, 2020, and loss from these translations for the six months ended June 30, 2020 was not significant.

Losses from these translations were not significant in the three and nine months ended September 30, 2021, and gains from these translations were not significant for the three and nine months ended September 30, 2020.

The Company and its subsidiaries that use the U.S.

dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and nonmonetary assets and liabilities at historical rates.

Losses from these remeasurements in the three and six months ended June 30, 2021 and in the six months ended June 30, 2020 were not significant.

Gains from these remeasurements were not significant in the three months ended June 30, 2020.

Losses from these remeasurements were not significant in the three and nine months ended September 30, 2021 and 2020.

The Company determines if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset.

Operating lease right-of-use, or ROU, asset, short-term lease liabilities, and long-term lease liabilities were included in other long-term assets, other current liabilities, and other long-term liabilities, respectively, in the accompanying Condensed Consolidated Balance Sheets.

Operating and finance lease right-of-use, or ROU assets, short-term lease liabilities, and long-term lease liabilities were included in other long-term assets, other current liabilities, and other long-term liabilities, respectively, in the accompanying Condensed Consolidated Balance Sheets.

Lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, including options to extend the lease when it is reasonably certain that the Company will exercise that option.

Lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, including options to extend the lease when it is reasonably certain that the Company will exercise that option.

The Company uses its incremental borrowing rate based on the information available at the commencement date, including inquiries with its bank, in determining the present value of lease payments since its leases do not provide an implicit rate.

The lease ROU asset includes any base rent payments made and excludes lease incentives and variable operating expenses.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company leases out space in buildings it owns in El Monte, California, to third-party tenants under noncancelable operating leases and has leased out such space since the Company purchased such buildings.

The Company recognizes lease payments as income over the lease terms on a straight-line basis and recognizes variable lease payments as income in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.

Lease ROU assets consist of initial measurement of lease liabilities, any lease payments made to lessor on or before the lease commencement date, minus any lease incentive received, and any initial direct costs incurred by the Company.

Operating lease expense for lease payments is recognized on a straight-line basis over the lease term.

For finance lease, ROU assets are amortized on a straight-line basis from the commencement date to the earlier of the end of useful life of the ROU assets or the end of the lease term.

Amortization of ROU assets and interest on the lease liability for finance leases are included as charges to the accompanying Condensed Consolidated Statements of Operations.

Lease ROU assets and liabilities arising from business combinations are recognized and measured at the acquisition dates as if an acquired lease were a new lease at the date of acquisition using the Company’s incremental borrowing rate unless the discount rate is implicit in the lease.

The Company elects to not to recognize assets or liabilities as of the acquisition dates for leases that, on the acquisition dates, have a remaining lease term of 12 months or less.

The Company also retains the acquirees’ classification of the leases if there are no modifications as part of the business combinations.

The Company leases and subleases out space in buildings it owns or leases to third-party tenants or subtenants under noncancelable operating leases .

T he Company recognizes lease payments as income over the lease terms on a straight-line basis and recognizes variable lease payments as income in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.

The net rental income is included in the interest and other income, net, in the accompanying Condensed Consolidated Statement of Operations.

1 unchanged sentence

In certain periods, a small number of customers has accounted for a significant portion of the Company’s revenue.

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

One customer contributed 45 % of the Company’s revenue for the three months ended June 30, 2020, and one customer contributed 31 % of the Company’s revenue for the six months ended June 30, 2020.

One customer comprised 13 % of total accounts receivable as of June 30, 2021.

No customer comprised 10 % or more of total accounts receivable as of December 31, 2020.

After aggregating customers that are under common control or are affiliates, two customers contributed 31% and 11% of the Company’s revenue for the three months ended September 30, 2021, respectively, and one customer contributed 26 % of the Company’s revenue for the nine months ended September 30, 2021.

One customer contributed 37 % and 35 % of the Company’s revenue for the three and nine months ended September 30, 2020, respectively.

No customer comprised 10% or more of total accounts receivable as of September 30, 2021 and December 31, 2020.

Revenue from the U.S.

government was less than 10% of total revenue for the three and six months ended June 30, 2021 and 2020.

government was less than 10% of total revenue for the three and nine months ended September 30, 2021 and 2020.

Revenue from Contracts with Customers

2 unchanged sentences

(i) Insurance, (ii) Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, or (iii) Patients who pay directly, as the Company believes this best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.

The following table summarizes revenue from contracts with customers by payor type for the three and six months ended June 30, 2021 and 2020 .

Three Months Ended June 30,

Six Months Ended June 30,

The following table summarizes revenue from contracts with customers by payor type for the three and nine months ended September 30, 2021 and 2020 .

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Contract Balances

Receivables from contracts with customers —As of June 30, 2021 and December 31, 2020, receivables from contracts with customers were approximately $ 148.6 million and $ 183.9 million, respectively, and are included within trade accounts receivable on the Condensed Consolidated Balance Sheets.

Contracts assets and liabilities —As of June 30, 2021 and December 31, 2020, contract assets from contracts with customers were $ 324,000 and $ 1.4 million, respectively, associated with contract execution and certain costs to fulfill a contract, and included in other current assets in the accompanying Condensed Consolidated Balance Sheets.

Receivables from contracts with customers —As of September 30, 2021 and December 31, 2020, receivables from contracts with customers were approximately $ 120.8 million and $ 183.9 million, respectively, and are included within trade accounts receivable on the Condensed Consolidated Balance Sheets.

Contracts assets and liabilities —As of September 30, 2021 and December 31, 2020, contract assets from contracts with customers were $ 206,000 and $ 1.4 million, respectively, associated with contract execution and certain costs to fulfill a contract, and included in other current assets in the accompanying Condensed Consolidated Balance Sheets.

Contract liabilities are recorded when the Company receives payment or bills prior to completing its obligation to transfer goods or services to a customer.

The Company had $ 6.9 million and $ 26.6 million of contract liabilities as of June 30, 2021 and December 31, 2020, respectively.

Revenues of $ 1.7 million and $ 196,000 for the three months and $ 25.5 million and $ 246,000 for the six months were recognized for the periods ended June 30, 2021 and 2020, respectively, related to contract liabilities at the beginning of the respective periods.

The Company had $ 7.9 million and $ 26.6 million of contract liabilities as of September 30, 2021 and December 31, 2020, respectively.

Revenues of $ 5.7 million and $ 252,000 for the three months and $ 26.4 million and $ 254,000 for the nine months were recognized for the periods ended September 30, 2021 and 2020, respectively, related to contract liabilities at the beginning of the respective periods.

Transaction Price Allocated to Future Performance Obligations

3 unchanged sentences

Cost is determined using actual costs on a first-in, first-out basis.

The reagents and supplies were $ 25.4 million and $ 16.5 million as of June 30, 2021 and December 31, 2020, respectively, and was included in other current assets in the accompanying Condensed Consolidated Balance Sheets.

The reagents and supplies were

$ 22.0 million and $ 16.5 million as of September 30, 2021 and December 31, 2020, respectively, and was included in other current assets in the accompanying Condensed Consolidated Balance Sheets.

Customer Deposit

8 unchanged sentences

The Company looks at qualitative factors such as general economic conditions in determining expected credit losses.

During the three and six months ended June 30, 2021, the Company recorded $ 2.2 million and $ 3.3 million of provision for credit losses for trade accounts receivable, respectively.

The provision was not significant for the three and six months ended June 30, 2020.

During the three and nine months ended September 30, 2021, the Company recorded $ 848,000 and $ 4.1 million of provision for credit losses for trade accounts receivable, respectively.

The provision was not significant for the three and nine months ended September 30, 2020.

Marketable Securities

All marketable debt securities, which consist of corporate debt securities, municipal bonds, U.S.

government agency debt securities, and Yankee debt securities issued by foreign governments or entities and denominated in U.S.

government and agency debt securities, and Yankee debt securities issued by foreign governments or entities and denominated in U.S.

dollars, have been classified as “available-for-sale”, and are carried at fair value.

5 unchanged sentences

In accordance with the Company’s investment policy, management invests to diversify credit risk and only invests in securities with high credit quality, including U.S.

government securities, and the final maturity is tailored to the Company’s current liquidity needs with a maximum final maturity from the date of purchase of three years .

government securities.

The Company’s investments in marketable equity securities are measured at fair value with the related gains and losses, realized and unrealized, recognized in interest and other income, net, in the accompanying Condensed Consolidated Statements of Operations.

4 unchanged sentences

If the Company has an intent to sell, or if it is more likely than not that the Company will be required to sell a debt security in an unrealized loss position before recovery of its amortized cost basis, the Company will write down the security to its fair value and record the corresponding charge as a component of interest and other income, net.

Redeemable Preferred Stock Investment

The redeemable preferred stock investment of $ 20.0 million as of September 30, 2021 consisted of redeemable preferred stock of Laboratory for Advanced Medicine, Inc., or Helio Health, that the Company purchased in July 2021.

The investment is classified as available-for-sale debt securities.

The fair value of available-for-sale debt security is included in the Condensed Consolidated Statement of Balance Sheets.

Any unrealized holding gains and losses will be excluded from earnings and reported in other comprehensive income (loss) until realized.

Since the Company intends on holding the preferred stock, and preferred stock is not redeemable until July 2027 , the investment is recorded as a long-term investment.

Business Combination

17 unchanged sentences

Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

The standard will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those reporting periods for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC.

The standard was effective for annual reporting periods beginning after December 15, 2019, including interim periods within those reporting periods for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC.

For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

2 unchanged sentences

The cumulative effect upon adoption was $ 887,000 to the retained earnings in the accompanying Condensed Consolidated Statements of Stockholders’ Equity and trade accounts receivable, net, in the accompanying Condensed Consolidated Balance Sheets.

The cumulative tax effective was $ 239,000 to retained earnings and deferred tax assets included in other long-term assets in the accompanying Condensed Consolidated Balance Sheets.

The cumulative tax effect was $ 239,000 to retained earnings in the accompanying Condensed Consolidated Statements of Stockholders’ Equity and deferred tax assets included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.

There was no impact related to available-for-sale debt securities.

5 unchanged sentences

The Company adopted ASU 2019-12 in the first quarter of 2021, and the adoption had no material impact to the Company’s condensed consolidated financial statements.

Marketable Securities

The Company’s marketable securities consisted of the following:

June 30, 2021

Equity and Debt Securities

The Company’s equity and debt securities consisted of the following:

September 30, 2021

(in thousands)

Marketable securities:

Equity securities:

Exchange traded funds

Total equity securities

Available-for-sale debt securities

1 unchanged sentence

Money market accounts

government debt securities

Municipal bonds

Yankee debt securities

Cash equivalents

Total short-term marketable securities

Total debt securities due within 1 year

After 1 year through 5 years

Corporate debt securities

Government debt securities

agency debt securities

Municipal bonds

Yankee debt securities

government agency debt securities

Total marketable securities due after 1 year through 5 years

Total debt securities due after 1 year through 5 years

After 5 years through 10 years

Municipal bonds

Total marketable securities due after 5 years through 10 years

Total marketable securities

Redeemable preferred stock investment

Total debt securities due after 5 years through 10 years

Total available-for-sale debt securities

Total equity and debt securities

December 31, 2020

(in thousands)

Marketable securities:

Equity securities:

Exchange traded funds

Total equity securities

Available-for-sale debt securities

2 unchanged sentences

Cash equivalents

Total short-term marketable securities

Total debt securities due within 1 year

After 1 year through 5 years

Corporate debt securities

government agency debt securities

agency debt securities

Yankee debt securities

Total marketable securities due after 1 year through 5 years

Total marketable securities

Gross unrealized losses on the Company’s marketable securities were $ 1.3 million as of June 30, 2021.

Total debt securities due after 1 year through 5 years

Total available-for-sale debt securities

Total equity and debt securities

Gross unrealized losses on the Company’s marketable securities were $ 1.0 million as of September 30, 2021.

Gross unrealized losses on the Company’s marketable securities were $ 298,000 as of December 31, 2020.

The Company currently does not intend to sell these securities prior to maturity.

During the three and six months ended June 30, 2021, the Company did no t recognize credit losses.

During the three and nine months ended September 30, 2021, the Company did no t recognize credit losses.

The Company’s securities of $ 421.2 million are used as collateral for an outstanding margin account borrowing.

As of June 30, 2021, the Company had an outstanding borrowing of $ 15.1 million under its margin account.

As of September 30, 2021, the Company had an outstanding borrowing of $ 15.1 million under its margin account.

Margin account borrowings were used for the purchase of real property located in El Monte, California in 2020.

10 unchanged sentences

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis, based on the three-tier fair value hierarchy:

June 30, 2021

September 30, 2021

(in thousands)

Marketable securities and cash equivalents:

Equity securities, debt securities and cash equivalents:

Exchange traded funds

Corporate debt securities

government debt securities

agency debt securities

Municipal bonds

Yankee debt securities

government agency debt securities

Redeemable preferred stock investment

Money market accounts

Total marketable securities and cash equivalents

Total equity securities, debt securities and cash equivalents

December 31, 2020

(in thousands)

Marketable securities and cash equivalents:

Equity securities, debt securities and cash equivalents:

Exchange traded funds

Corporate debt securities

government agency debt securities

Yankee debt securities

agency debt securities

Money market accounts

Total marketable securities and cash equivalents

The Company’s Level 1 assets include marketable equity securities and money market instruments and are valued based upon observable market prices.

Total equity securities, debt securities and cash equivalents

The Company’s Level 1 assets include bond funds, exchange traded funds, and money market instruments and are valued based upon observable market prices.

Level 2 assets consist of U.S.

government agency debt securities, municipal bonds, corporate debt securities and Yankee debt securities.

Level 2 securities are valued based upon observable inputs that include reported trades, broker/dealer

quotes, bids and offers.

As of June 30 , 202 1 , the Company had no investments that were measured using unobservable (Level 3) inputs.

There were no transfers between fair value measurement levels during the three and six months ended June 30, 2021.

government and U.S.

agency debt securities, municipal bonds, corporate debt securities and Yankee debt securities.

Level 2 securities are valued based upon observable inputs that include reported trades, broker/dealer quotes, bids and offers.

As of September 30, 2021, the Company had $ 20.0 million of redeemable preferred stock of Helio Health that was measured using unobservable (Level 3) inputs.

The quantitative unobservable inputs for the redeemable preferred stock investment are not developed by the Company.

The fair value is based on the most recent transaction price in July 2021, and there has not been any significant activity at Helio Health since July 2021, including any new funding rounds, that would result in a material change in the value.

There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2021.

Major classes of fixed assets consisted of the following:

September 30,

(in thousands)

Medical lab equipment

2 to 12 Years

Computer hardware

1 unchanged sentence

Shorter of lease term or estimated useful life

Computer software

Furniture and fixtures

2 to 10 Years

Building improvements

6 months to 5 Years

Computer software

Land improvements

4 unchanged sentences

Fixed assets, net

Depreciation expense on fixed assets totaled $ 2.3 million and $ 549,000 for the three months and $ 4.2 million and $ 1.1 million for the six months ended June 30, 2021 and 2020, respectively.

Depreciation expense on fixed assets totaled $ 2.5 million and $ 722,000 for the three months and $ 6.7 million and $ 1.8 million for the nine months ended September 30, 2021 and 2020, respectively.

Other Significant Balance Sheet Accounts

Other current assets consisted of the following:

September 30,

(in thousands)

6 unchanged sentences

Reagents and supplies include reagents and consumables used for COVID-19 testing and genetics testing and collection kits for COVID-19 testing.

Other receivable as of December 31, 2020 primarily consists of proceeds to be received from public offerings of the Company’s common stock, which were all collected during the six months ended June 30, 2021.

Other receivable as of December 31, 2020 primarily consists of proceeds to be received from public offerings of the Company’s common stock, which were all collected during the nine months ended September 30, 2021.

Other current liabilities consisted of the following:

September 30,

(in thousands)

Payable to a broker

Contingent consideration

Payroll liabilities

Sales tax payable and other

Operating lease liabilities

Operating lease liabilities, short term

Due to related parties

Sales tax payable and other

Finance lease liabilities, short term

The payable to a broker of $ 20.1 million was for marketable securities purchased before the period-end that did not settle until after period-end, and contingent consideration of $ 8.5 million was related to the acquisition of CSI (see Note 14).

Reporting Segment and Geographic Information

The Company views its operations and manages its business in one reporting segment.

Long-lived assets were primarily located in the United States as of June 30, 2021 and December 31, 2020 with an insignificant amount located in China and Canada.

Revenue by region during the three and six months ended June 30, 2021 and 2020 were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Long-lived assets were primarily located in the United States as of September 30, 2021 and December 31, 2020 with an insignificant amount located in China and Canada.

Revenue by region during the three and nine months ended September 30, 2021 and 2020 were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

Debt, Commitments and Contingencies

As of June 30, 2021, the Company had an outstanding borrowing of $ 15.1 million under its margin account with the custodian of the Company’s marketable debt security investment account, Pershing Advisor Solutions, LLC, a BNY Mellon Company.

As of September 30, 2021, the Company had an outstanding borrowing of $ 15.1 million under its margin account with the custodian of the Company’s marketable debt security investment account, Pershing Advisor Solutions, LLC, a BNY Mellon Company.

Margin account borrowings were used for the purchase of real property located in El Monte, California in 2020.

2 unchanged sentences

The interest rate on the margin loan was the effective federal funds rate, or EFFR, plus a spread, and the EFFR and/or the spread can be changed by BNY Mellon at any time.

The interest was 1 % at the time of withdrawal of $ 15.0 million from the margin account, and the interest rate at June 30, 2021 was less than 1.0 %.

The interest was 1 % at the time of withdrawal of $ 15.0 million from the margin account, and the interest rate at September 30, 2021 was less than 1.0 %.

The Company did not make any other withdrawals from the margin account, and the outstanding balance of $ 15.1 million is included in the accompanying Condensed Consolidated Balance Sheets.

The related interest expenses for the three and six months ended June 30, 2021 were $ 29,000 and $ 58,000 , respectively.

The related interest expenses were none for the three and six months ended June 30, 2020.

Notes payable as of June 30, 2021 consisted of $ 5.9 million of notes payable to Xilong Scientific Co., Ltd., or Xilong Scientific, by Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech, as defined in Note 14, Business Combination.

The related interest expenses for the three and nine months ended September 30, 2021 were $ 30,000 and $ 88,000 , respectively.

There were no related interest expenses for the three and nine months ended September 30, 2020.

Notes payable as of September 30, 2021 consisted of $ 5.9 million of notes payable to Xilong Scientific Co., Ltd., or Xilong Scientific, by Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech, as defined in Note 14, Business Combination.

The loan is payable on December 31, 2022 and interest rate on the loan is 4.97 %.

The related interest expenses for the three and nine months ended September 30, 2021 were $ 74,000 .

Operating Leases

1 unchanged sentence

Purchase Obligations

As of June 30, 2021, the Company had non-cancelable purchase obligations of $ 7.6 million, of which, $ 4.9 million for reagents and other supplies, $ 2.3 million for medical lab equipment, and $ 372,000 for medical lab furniture are payable within twelve months.

As of September 30, 2021, the Company had non-cancelable purchase obligations of $ 13.8 million, of which, $ 10.4 million for reagents and other supplies, $ 3.0 million for medical lab equipment, and $ 373,000 for medical lab furniture are payable within twelve months.

Contingencies

1 unchanged sentence

In the opinion of management, the outcome of these matters would not have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

The Company is party as a lessee to various non-cancelable operating leases with varying terms through February 2026 primarily for laboratory and office space and equipment.

The Company has an option to renew one of these leases for one year after its expiration.

The Company is party as a lessee to various non-cancelable operating leases with varying terms through March 2028 primarily for laboratory and office space and equipment.

The Company has options to renew some of these leases after their expirations.

On a lease-by-lease basis, the Company considers such options, which may be elected at the Company’s sole discretion, in determining the lease term.

The Company does not have any finance leases or leases with variable lease payments.

The Company’s lease agreements do not contain any residual value guarantees, material restrictive covenants, bargain purchase options or asset retirement obligations.

The Company also has a finance lease acquired in the acquisition of CSI for lab equipment through July 2024, and the Company retains CSI’s classification of its leases.

The Company does not have any leases with variable lease payments.

The Company’s operating lease agreements do not contain any residual value guarantees, material restrictive covenants, bargain purchase options or asset retirement obligations.

The Company’s headquarters are located in Temple City, California, which is comprised of various corporate offices and a laboratory certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, accredited by the College of American Pathologists, or CAP, and licensed by the State of California Department of Public Health.

Another CLIA-certified laboratory is located in Houston, Texas.

Other CLIA-certified laboratories are located in Houston, Texas and Alpharetta, Georgia.

Additional offices are located in Atlanta, Georgia and are used for certain report generation functions.

1 unchanged sentence

In March 2021, the Company entered into a new lease for its 12,000 square foot CLIA-certified laboratory in Houston, Texas, and the lease will expire in November 2023 .

The operating lease right-of-use asset, short-term lease liabilities, and long-term lease liabilities as of June 30, 2021 and December 31, 2020 were as follows:

The operating and finance lease right-of-use asset, short-term lease liabilities, and long-term lease liabilities as of September 30, 2021 and December 31, 2020 were as follows:

September 30,

(in thousands)

Operating lease right-of-use asset

Operating lease ROU asset, net

Operating lease liabilities, short term

Operating lease liabilities, long term

The following was operating lease expense:

Three months ended June 30,

Six months ended June 30,

Finance lease ROU asset, net

Finance lease liabilities, short term

Finance lease liabilities, long term

The following was operating and finance lease expense:

Three months ended September 30,

Nine months ended September 30,

(in thousands)

Operating lease cost

Finance lease cost:

Amortization of ROU assets

Interest on lease liabilities

Short-term lease cost

Total lease cost

Supplemental information related to leases was the following:

June 30, 2021

Supplemental information related to operating leases and finance lease was the following:

September 30, 2021

Weighted average remaining lease term - operating leases

Weighted average discount rate - operating leases

The following is a maturity analysis of operating lease liabilities using undiscounted cash flows on an annual basis with renewal periods included:

Weighted average remaining lease term -finance lease

Weighted average discount rate - finance lease

The following is a maturity analysis of operating and finance lease liabilities using undiscounted cash flows on an annual basis with renewal periods included:

Operating Leases

Finance Lease

(in thousands)

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The Company leases out space in buildings it owns to third-party tenants under noncancelable operating leases and has leased out such space since the Company purchased such buildings in October 2020.

As of June 30, 2021, the remaining lease terms left range from 17 months to 42 months including renewal options and may include rent escalation clauses.

The Company also subleases out some space in a lease acquired as part of the acquisition of CSI.

As of September 30, 2021, the remaining lease terms left range from 14 months to 47 months including renewal options and may include rent escalation clauses.

Lease income primarily represents fixed lease payments from tenants recognized on a straight-line basis over the application lease term.

Variable lease income represents tenant payments for real estate taxes, insurance and maintenance.

The lease income was $ 85,000 and $ 242,000 for the three and six months ended June 30, 2021, respectively, which was included in interest and other income, net, in the accompanying Condensed Consolidated Statements of Operations.

The lease income was $ 79,000 and $ 321,000 for the three and nine months ended September 30, 2021, respectively, which was included in interest and other income, net, in the accompanying Condensed Consolidated Statements of Operations.

Total lease income was as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

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Total lease income

Future fixed lease payments from tenants for all noncancelable operating leases as of June 30, 2021 are as follows:

Future fixed lease payments from tenants for all noncancelable operating leases as of September 30, 2021 are as follows:

Lease Payments

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The Company has included equity-based compensation expense as part of cost of revenue and operating expenses in the accompanying Condensed Consolidated Statements of Operations as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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General and administrative

Provision for (Benefit from) Income Taxes

Provision for Income Taxes

The effective tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur.

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As such, there can be significant volatility in interim tax provisions.

The Company recorded consolidated provision for (benefit from) income taxes of $ 23.6 million and $ 90.1 million for the three and six months ended June 30, 2021, respectively, compared with $( 599,000 ) and $( 565,000 ) for the three and six months ended June 30, 2020, respectively.

The Company’s effective tax rates were 24 % and 25 % for the three and six months ended June 30, 2021, respectively, compared with - 21 % and - 45 % or the three and six months ended June 30, 2020, respectively.

The change in the effective tax rate for the three-month and six-month periods of 2021, relative to 2020, was primarily attributable to a significant increase in income for the first quarter of 2021, and, to a lesser extent, an increase in income for the second quarter of 2021, partially offset by increased windfall tax deductions related to stock-based compensation.

The Company recorded consolidated provision for income taxes of $ 37.5 million and $ 127.6 million for the three and nine months ended September 30, 2021, respectively, compared with $ 14.5 million and $ 14.0 million for the three and nine months ended September 30, 2020, respectively.

The Company’s effective tax rates were 23 % and 24 % for the three and nine months ended September 30, 2021, respectively, compared with 23 % and 21 % for the three and nine months ended September 30, 2020, respectively.

The change in the effective tax rate for the nine-month period of 2021, relative to 2020, was primarily attributable to a significant increase in the Company’s pre-tax income in 2021, partially offset by increased windfall tax deductions related to stock-based compensation.

The Company is not currently under examination by any major income tax jurisdiction.

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The Company does not believe the federal or state statute lapses or any other event will significantly impact the balance of unrecognized tax benefits in the next twelve months.

The net balance of unrecognized tax benefits was not material to the interim financial statements for the three and six months ended June 30, 2021 and 2020.

The net balance of unrecognized tax benefits was not material to the interim financial statements for the three and nine months ended September 30, 2021 and 2020.

Income per Share

The following table presents the calculation of basic and diluted income per share for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

The following table presents the calculation of basic and diluted income per share for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share data)

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The following securities have been excluded from the calculation of diluted income per share because their effect would have been anti-dilutive:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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Linda Marsh, who is a member of the Company’s board of directors, is currently the Senior Executive Vice President of AHMC Healthcare Inc.

The Company performs genetic testing and other testing services, on an arms-length basis, for AHMC, and the Company recognized $ 738,000 and $ 1.9 million in revenue in the three and six months ended June 30, 2021, respectively.

The Company did not perform any services for AHMC and did no t recognize any revenue in the three and six months ended June 30, 2020.

As of June 30, 2021 and December 31, 2020, $ 793,000 and $ 1.8 million was owed to the Company by AHMC, which is included in trade accounts receivable, net, in the accompanying Condensed Consolidated Balance Sheets, in connection with this relationship.

The Company and Fulgent Pharma LLC, the Company’s former subsidiary, are party to shared services arrangements where research and development and administrative services and office space and equipment are provided between the companies, on an arms-length basis.

The Company performs genetic testing and other testing services, on an arms-length basis, for AHMC, and the Company recognized $ 762,000 and $ 2.6 million in revenue in the three and nine months ended September 30, 2021, respectively.

The Company recognized $ 1.3 million in revenue in the three and nine months ended September 30, 2020.

As of September 30, 2021 and December 31, 2020, $ 724,000 and $ 1.8 million was owed to the Company by AHMC, which is included in trade accounts receivable, net, in the accompanying Condensed Consolidated Balance Sheets, in connection with this relationship.

The Company and Fulgent Pharma LLC, the Company’s former subsidiary, are party to shared services arrangements where research and development, administrative services and office space and equipment are provided between the companies, on an arms-length basis.

Ming Hsieh is the Manager and a member of Fulgent Pharma LLC.

During the three and six months ended June 30, 2021, the cost of research development services rendered by Fulgent Pharma LLC for the Company was $ 97,000 and $ 205,000 , respectively.

The cost of research development services rendered by Fulgent Pharma LLC for the Company was no t significant during the three and six months ended June 30, 2020.

Amounts for services performed by the Company for Fulgent Pharma LLC were no t significant during the three and six months ended June 31, 2021 and 2020.

As of June 30, 2021, and December 31, 2020, $ 574,000 and $ 409,000 , respectively, were owed to Fulgent Pharma LLC by the Company, which are included in due to related parties as a component in other current liabilities in the accompanying Condensed Consolidated Balance Sheets, in connection with these relationships.

Business Combination

During the three and nine months ended September 30, 2021, the cost of research development services rendered by Fulgent Pharma LLC for the Company was $ 74,000 and $ 279,000 , respectively.

The cost of research development services rendered by Fulgent Pharma LLC for the Company was no t significant during the three and nine months ended September 30, 2020.

Amounts for services performed by the Company for Fulgent Pharma LLC were no t significant during the three and nine months ended September 30, 2021 and 2020.

As of September 30, 2021, and December 31, 2020, $ 634,000 and $ 409,000 , respectively, were owed to Fulgent Pharma LLC by the Company, which are included in due to related parties as a component in other current liabilities in the accompanying Condensed Consolidated Balance Sheets, in connection with these relationships.

The Chief Executive Officer and Chairman of the Company’s board of directors, Ming Hsieh, is the owner of PTJ Associates Inc., or PTJ.

PTJ provides flight services to the Company on an arms-length basis.

During the three and nine months ended September 30, 2021, the company incurred $ 65,000 and $ 142,000 , respectively, in expenses for flights between California and Texas to transport employees and supplies.

As of September 30, 2021, nothing was owed to PTJ by the Company.

As of December 31, 2020, $ 94,000 was owed to PTJ by the Company, which is included in accounts payable in the accompanying Condensed Consolidated Balance Sheets.

Business Combinations

The Company believes that the acquisitions of businesses enhance its existing businesses by either expanding its geographic range and customer base or expanding its existing product lines.

The Company incurred $ 2.2 million and $ 2.8 million acquisition related costs for the three and nine months ended September 30, 2021, respectively, which was included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

FF Gene Biotech

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In May 2021, the Company entered into a restructuring agreement with Xilong Scientific and FJIP, resulting in the Company indirectly acquiring a 72 % controlling financial interest in FF Gene Biotech.

As a result of the acquisition of FF Gene Biotech, or the FF Gene Biotech Acquisition , the Company will be more strategically aligned with it geographic expansion strategy.

As a result of the acquisition of FF Gene Biotech, or the FF Gene Biotech Acquisition , the Company seeks to be more strategically aligned with its geographic expansion strategy.

It also expects to reduce costs through economies of scale.

The goodwill of $ 23.1 million arising from the FF Gene Biotech Acquisition is attributed to the expected synergies and other benefits that will be potentially generated from the combination of the Company and FF Gene Biotech.

The goodwill recognized is not deductible for tax purposes .

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on estimated fair values.

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Noncontrolling interest

The Company incurred $ 329,000 acquisition related costs, which was recorded as general and administrative expenses in its condensed consolidated statements of operations.

The fair value of the noncontrolling interest, or NCI, in FF Gene Biotech, a private entity, $ 8.1 million, was estimated by applying the income approach and market approach.

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The Company did not apply the market approach based on its characteristics before consummating the restructuring.

The gain on the equity method investment is included in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021.

The amounts of FF Gene Biotech’s revenue and net losses included in the Company’s Condensed Consolidated Statements of Operations for the periods ended June 30, 2021 and the revenue and net losses of the combined entity had the acquisition date been January 1, 2021 are not material to the Company.

The identified intangible assets acquired in the FF Gene Biotech Acquisition consisted of a $ 5.7 million royalty-free technology with an estimated amortization life of 10 years and a $ 1.2 million customer relationships with an estimated amortization life of 5 years.

The value of these assets were based upon the preliminary fair values as of the closing date of the FF Gene Biotech Acquisition.

The gain on the equity method investment is included in the Company’s Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021.

The goodwill recognized is not deductible for tax purposes .

The identified intangible assets acquired in the FF Gene Biotech Acquisition consisted of a $ 5.7 million royalty-free technology with an estimated amortization life of 10 years and $ 1.2 million customer relationships with an estimated amortization life of 5 years .

The value of these assets was based upon the preliminary fair values as of the closing date of the FF Gene Biotech Acquisition .

The Company concluded FF Gene Biotech is a variable interest entity as FF Gene Biotech lacks sufficient capital to operate independently.

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Prior to the FF Gene Biotech Acquisition , the financial results for FF Gene Biotech were not significant for pro forma financial information.

CSI Acquisition

In August 2021 the Company acquired 100 % of the outstanding equity of CSI, a multi-site reference laboratory business in the United States.

This acquisition of CSI, or the CSI Acquisition, expands the Company’s national reference laboratory presence in the United States.

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on estimated fair values.

As additional information becomes available, the Company may further update the preliminary purchase price allocation during the remainder of the measurement period (up to one year from the CSI Acquisition date).

The following tables summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the CSI Acquisition date:

(in thousands)

Considerations

Contingent consideration

Recognized amounts of identifiable assets acquired and liabilities assumed

Debt-free net working capital

ROU assets - operating

ROU assets - finance

Identifiable intangible assets

Deferred tax liability

Operating lease liabilities

Finance lease liabilities

Other liabilities

Recognized amounts of identifiable assets acquired and liabilities assumed, net

The CSI Acquisition includes a contingent consideration arrangement that requires additional consideration to be paid by the Company based on CSI’s achievement of a minimum level of earnings, for the year ending December 31, 2021, as described in the acquisition agreement.

The range of undiscounted amounts the Company may be required to pay under the contingent consideration agreement is between zero and $ 10.0 million.

The fair value of the contingent consideration recognized on the CSI Acquisition date of $ 8.5 million was estimated by applying the income approach using discounted cash flows.

Given the short-term nature of the contingent consideration the most significant assumption is the probability weighted cash flow.

The goodwill of $ 25.7 million arising from the CSI Acquisition is attributed to the expected synergies, assembled workforce, other benefits that will be potentially generated from the combination and deferred tax.

The goodwill recognized is not deductible for tax purposes.

The identified intangible assets acquired in the CSI Acquisition consisted of $ 27.6 million customer relationships with an estimated amortization life of 12 years, $ 1.9 million laboratory information system platform with an estimated amortization life of 5 years, and $ 1.1 million trade name with an estimated amortization life of 10 years.

Revenue and operating income or loss from both acquisitions since the respective 2021 acquisition dates are included in the accompanying Condensed Consolidated Statements of Operations as follows, in thousands:

Operating Income (loss)

FF Gene Biotech

Equity Distribution Agreement

In November 2020, the Company entered into an Equity Distribution Agreement, or the November 2020 Equity Distribution Agreement, with Piper Sandler & Co.

(f/k/a Piper Jaffray & Co.), Oppenheimer & Co.

(f/k/a Piper Jaffray & Co.), or Piper, Oppenheimer & Co.

Inc., and BTIG LLC, as sales agents, pursuant to which the Company may offer and sell, from time to time through Piper, shares of its 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 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 .

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 .

The Company did no t sell any shares of its common stock during the three months ended September 30, 2021 pursuant to the November 2020 Equity Distribution Agreement.

During the nine months ended September 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 .

Goodwill and Acquisition-Related Intangibles

Summaries of goodwill and acquisitions-related intangibles balances as of June 30, 2021 and December 30, 2020 were as follows:

Summaries of goodwill and acquisitions-related intangibles balances as of September 30, 2021 and December 30, 2020 were as follows:

September 30,

Weighted-Average Amortization Period

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Customer relationships, net

accumulated amortization

Trade name, net

Laboratory information system platform

accumulated amortization

Laboratory information system platform, net

Total acquisition-related intangibles, net

During the three months ended June 30, 2021, the Company recorded $ 23.1 million of goodwill and $ 7.0 million of intangibles attributable to the FF Gene Biotech Acquisition.

See Note 14, Business Combination, to the Company's condensed consolidated financial statements.

Based on the carrying value of acquisition-related intangibles recorded as of June 30, 2021, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:

During the nine months ended September 30, 2021, the Company recorded $ 23.1 million of goodwill and $ 7.0 million of intangibles attributable to the FF Gene Biotech Acquisition.

See Note 14, Business Combinations, to the Company's condensed consolidated financial statements.

During the three months ended September 30, 2021, the Company recorded $ 25.7 million of goodwill and $ 30.5 million of intangibles attributable to the CSI Acquisition.

See Note 14, Business Combinations, to the Company's condensed consolidated financial statements.

Based on the carrying value of acquisition-related intangibles recorded as of September 30, 2021, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:

(in thousands)

2021 (remaining 3 months)

Subsequent Events

In July 2021, the Company invested $ 20.0 million in Laboratory for Advanced Medicine, Inc., or Helio Health, incorporated in Cayman Islands, and, in connection with the investment in Helio Health, the Company obtained a minority shareholder interest.

Helio Heath is an AI-driven healthcare company developing early testing capabilities for cancer.

Through this partnership, the Company seeks to have access to an emerging liquid biopsy testing technology in the U.S.

and China and exclusive commercial rights to Helio Health’s liquid biopsy tests in the U.S.

In August 2021, the Company completed an acquisition of Cytometry Specialists, Inc., or CSI, a Georgia corporation, through the acquisition of all of the issued and outstanding common stock of CSI in exchange for $ 50.0 million in cash and up to $ 10.0 million in potential future milestone payments.

Through the acquisition of CSI, the Company seeks to expand the Company’s presence and capabilities in somatic molecular diagnostics and cancer testing .

The Company plans to leverage its established technology platform, NGS expertise, lab operations, and sales infrastructure in conjunction with CSI’s extensive cancer testing menu to establish a differentiated foothold in oncologic testing in the United States.

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 1. Financial Statements