What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-10 · 109 added, 82 removed, 156 unchanged (55% of the section changed)

30 unchanged sentences

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 also offer at-home COVID-19 testing services through our Picture Genetics platform to both individuals and large organizations, including the New York City Test and Trace program.

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

FF Gene Biotech was founded to bring our NGS capabilities to the Chinese genetic testing market.

This joint venture has enabled us to have an operational presence on the ground in China as we seek to capitalize on the large and growing genetic testing opportunity in that country.

As a result of the acquisition, we seek to be more strategically aligned with its geographic expansion strategy.

It also expects to reduce costs through economies of scale.

In August 2021, we acquired CSI, a Georgia corporation, to expand our presence and capabilities in somatic molecular diagnostics and cancer testing.

We plan to leverage our 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.

Through our acquisition of CSI, we have added the following types of testing services to our test menu:

Flow Cytometry – a sophisticated cell analysis technique providing diagnosis, prognosis, and monitoring of malignancies with a relatively small sample size.

It provides the ability to identify emerging abnormalities and perform rare event analysis of patient-specific aberrant immunophenotypes, or cells expressing abnormal proteins unique to a specific patient.

Fluorescence In-Situ Hybridization, or FISH – a laboratory technique for detecting and locating a specific DNA sequence on a chromosome, FISH probe panels and individual probes are able to precisely isolate and identify genetic alterations in solid tumor and hematological neoplasms, or abnormal cells located in the blood and blood forming tissues, such as bone marrow and lymphatic tissue.

FISH cancer testing is a diagnostic tool that can detect and confirm chromosome abnormalities such as deletions, duplications, translocations and other numerical or structural aberrations to diagnose and help predict the best therapeutic approach for cancer patients.

Immunohistochemistry, or IHC – an imaging technique used to visualize antigens in cells.

IHC antibodies and histochemical stains are used to detect the presence, relative quantity, and localization of specific proteins to aid in determining differentiation in abnormal cells with similar structures.

In addition to other applications, IHC is used to provide prognostic or therapeutic information.

Cytogenetics - analyzes the entire chromosome set for numerical and structural abnormalities such as chromosome additions, deletions and translocations.

Identification of each abnormality may aid diagnosis and treatment decisions for cancer patients.

Molecular Testing - includes both hematopoietic and solid tumor molecular assays for qualitative and quantitative analysis.

Advanced single gene testing, targeted profile molecular assays, and broad-spectrum tumor testing yield clinically actionable data for precise diagnosis and appropriate therapy selection.

We offer tests at competitive prices, averaging approximately $99 per billable test delivered in the nine months ended September 30, 2021, and at a lower cost to us than many of our competitors, averaging approximately $20 per billable test delivered in the nine months ended September 30, 2021.

Our volume has grown rapidly since our commercial launch, with 2.2 million and 7.5 million billable tests delivered in the three and nine months ended September 30, 2021, respectively, compared to 1.0 million and 1.2 million billable tests delivered in the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, an aggregate of approximately 12.0 million billable tests have been delivered to over 1,700 customers since launching our first commercial genetic tests in 2013.

We have experienced compound quarterly growth of 94% 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.

We recorded revenue and net income of $227.9 million and $122.5 million, respectively, in the three months ended September 30, 2021, compared to revenue and net income of $101.7 million and $46.6 million, respectively, in the three months ended September 30, 2020.

We recorded revenue and net income of $740.9 million and $403.0 million, respectively, in the nine months ended September 30, 2021, compared to revenue and net income of $126.7 million and $48.0 million, respectively, in the nine months ended September 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 three quarters of 2021, but we have recorded losses in all other periods since our inception.

COVID-19 Considerations

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The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, circumstances regarding the emergence and prevalence of COVID-19 variants, the success of vaccination campaigns (both in the United States and internationally), the actions taken to contain COVID-19 or treat it and related impacts on local, regional, national and international markets and supply chains.

In the first 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.

During the nine months ended September 30, 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.

In the three and nine months ended September 30, 2021, 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.

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However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our, or our third-party service providers’ and suppliers’, workforce and/or supply chain.

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

The COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of September 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 September 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.

12 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Statement of Operations Data:

5 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

Income before gain on equity method

Income before income taxes, gain

(loss) on equity method investments

and equity loss in investee

Gain on equity method investment

Provision for income taxes

Income before gain (loss) on

equity method investments

and equity loss in investee

Gain (loss) on equity-method

Equity loss in investee

11 unchanged sentences

We calculate cost per billable test delivered by dividing our cost of revenue in a period by the number of billable tests delivered in the same period.

Revenue increased $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 increased $126.2 million, or 124%, from $101.7 million in the three months ended September 30, 2020 to $227.9 million in the three months ended September 30, 2021 , and increased $614.2 million, or 485%, from $126.7 million in the nine months ended September 30, 2020 to $740.9 million in the nine months ended September 30, 2021.

The increases in revenue between periods were primarily due to increases in the number of billable tests delivered, primarily related to the increased orders for our COVID-19 tests.

The average price of the billable tests we delivered increased from $98 in the three months ended September 30, 2020 to $105 in the three months ended September 30, 2021, and decreased from $103 in the nine months ended September 30, 2020 to $99 in the nine months ended September 30, 2021.

The increase in the three-month period was primarily due to the mix of tests delivered in the periods.

The decrease in the nine-month period was 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 nine months ended September 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 .

sources increased $2.7 million, or 180%, from $1.5 million in the three months ended September 30, 2020 to $4.2 million in the three months ended September 30, 2021, and increased $5.1 million, or 108%, from $4.7 million in the nine months ended September 30, 2020 to $9.8 million in the nine months ended September 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 .

sources between periods were primarily due to increased sales of our traditional genetic testing services to customers in China through FF Gene Biotech.

The number of billable tests we delivered increased 1.1 million, from 1.0 million in the three months ended September 30, 2020 to 2.2 million in the three months ended September 30, 2021, and increased 6.3 million, from 1.2 million in the nine months ended September 30, 2020 to 7.5 million in the nine months ended September 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.

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.

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 .

Cost of revenue increased $17.2 million, or 66%, from $26.3 million in the three months ended September 30, 2020 to $43.5 million in the three months ended September 30, 2021 .

The increase was primarily due to increases of $4.5 million in consulting and outside labor costs related to increased outside labor for production, $4.0 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock, $3.0 million in reagent and supply expenses related to increased billable tests delivered, $2.0 million in shipping and handling expense related to delivery of collection kits for of COVID-19 tests, $1.7 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.

Cost of revenue increased $115.4 million, or 303%, from $38.0 million in the nine months ended September 30, 2020 to $153.4 million in the nine months ended September 30, 2021.

The increase was primarily due to increases of $45.8 million in reagent and supply expenses related to increased billable tests delivered, $29.2 million in consulting and outside labor costs related to increased outside labor for production, $13.1 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock , $10.9 million in shipping and handling expense related to delivery of collection kits for of COVID-19 tests, $7.9 million in software expense related to usage of COVID-19 testing software, $4.5 million in depreciation expenses related to medical lab equipment purchased, and $2.1 million in facilities primarily related to certain modifications made to our mini vans used for our COVID-19 business.

Cost per billable test delivered decreased $5, or 20%, from $25 in the three months ended September 30, 2020 to $20 in the three months ended September 30, 2021, cost per billable test delivered decreased $11, or 35%, from $31 in the nine months ended September 30, 2020 to $20 in the nine months ended September 30, 2021.

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.

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 .

Our cost per billable test decreased in part due to our efforts to leverage our technology, such as engineered chemistry and competitive analytics powered by artificial intelligence and machine learning.

Our gross profit increased $ 108.2 million , from $ 9 .5 million in the three months ended June 30 , 20 20 to $ 117.8 million in the three months ended June 30 , 202 1 , and increased $ 389.9 million , from $ 13.

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

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

Our gross profit increased $ 108.9 million , from $ 75.5 million in the three months ended September 30 , 20 20 to $ 184.4 million in the three months ended September 30 , 202 1 , and increased $ 498.8 million , from $ 88.7 million in the nine months ended September 30 , 20 20 to $ 587.5 million in the nine months ended September 30 , 202 1 .

Our gross profit as a percentage of revenue, or gross margin, in creased from 74.2 % to 80.9% between three months ended September 30 , 20 20 and 20 2 1 , and increased from 70.0 % to 79.3% between nine months ended September 30 , 20 20 and 20 2 1 , due in part to the increase in revenue and the decrease in our cost per billable test 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.

Research and development expenses increased $2.8 million, or 90%, from $3.2 million in the three months ended September 30, 2020 to $6.0 million in the three months ended September 30, 2021.

The increase was primarily due to increases of $2.0 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock and $630,000 in reagent and supply expenses related to increased reagent usage for COVID-19 research .

Research and development expenses increased $9.8 million, or 139%, from $7.0 million in the nine months ended September 30, 2020 to $16.8 million in the nine months ended September 30, 2021.

The increase was primarily due to increases of $6.3 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock , $1.9 million in reagent and supply expenses related to increased reagent usage for COVID-19 research, and $510,000 in consulting and outside labor costs for increased outside labor used.

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.

Selling and marketing expenses increased $1.0 million, or 20% from $5.0 million in the three months ended September 30, 2020 to $6.0 million in the three months ended September 30, 2021.

The increase was primarily due to an increase of $1.4 million in personnel costs including equity-based compensation expense related to increased commission expense and market price of the Company’s stock, and partially offset by a decrease of $581,000 in shipping and handling related to marketing supplies shipped to potential customers in 2020.

Selling and marketing expenses increased $6.4 million, or 65% from $9.9 million in the nine months ended September 30, 2020 to $16.2 million in the nine months ended September 30, 2021.

The increase was primarily due to increases of $6.1 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 costs for increased outside labor used , and partially offset by a decrease of $1.6 million in marketing supplies, including kits to potential customers in 2020.

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.

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.

General and administrative expenses increased $8.6 million, or 229% from $3.7 million in the three months ended September 30, 2020 to $12.3 million in the three months ended September 30, 2021.

The increase was primarily due to increases of $2.4 million in consulting costs and $545,000 in legal and professional fees primarily related to the FF Gene Biotech Acquisition and CSI Acquisition, $2.2 million in personnel costs including equity-based compensation expense related to increased headcount and market price of the Company’s stock, $1.1 million software expense and licensing related to increased number of billings, $1.0 million in bad debt expense related to additional provision for credit losses, and $603,000 in accounting fees related to financial statement and internal control audits and reviews.

General and administrative expenses increased $21.1 million, or 278% from $7.6 million in the nine months ended September 30, 2020 to $28.6 million in the nine months ended September 30, 2021.

The increase was primarily due to increases of $4.8 million in personnel costs including equity-based compensation related to increased headcount and market price of the Company’s stock, $4.1 million in bad debt expense related to additional provision for credit losses, $3.8 million in software and licensing related to increased number of billings, $2.7 million in consulting costs and $1.4 million in legal and professional fees primarily related to the FF Gene Biotech Acquisition and CSI Acquisition, and $961,000 in accounting fees related to financial statement and internal control audit and reviews.

Interest and Other Income, net

Interest income was $443,000 and $424,000 in the three months ended September 30, 2021 and 2020, respectively, and $1.2 million and $999,000 in the nine months ended September 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 .

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

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

Provision for Income Taxes

Provision for income taxes were $37.5 million and $127.6 million for the three and nine months ended September 30, 2021, respectively, and $14.5 million and $14.0 million for the three and nine months ended September 30, 2020, respectively.

The effective tax rate was 23% for the three months ended September 30, 2021 compared with 23% for the three months ended September 30, 2020.

The effective tax rate was 24% for the nine months ended September 30, 2021 compared with 21% for the nine months ended September 30, 2020.

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.

Gain (Loss) on Equity Method Investments

The Company recognized a gain of $3.7 million in the nine months ended September 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.

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

Loss in equity-method investment in the three months and nine months ended September 30, 2020 was an impairment loss of $2.6 million related to our 25% ownership interest in BostonMolecules.

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.

There was no equity loss in investee in the three and nine months ended September 30, 2021.

Equity loss in investee was $189,000 and $631,000 in the three and nine months ended September 30, 2020, respectively.

Equity loss in investee in 2020 related to our preexisting 30% ownership interest in FF Gene Biotech prior to the FF Gene Biotech Acquisition.

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.

Net loss attributable to noncontrolling interest represents net loss of FF Gene Biotech attributable to the minority shareholders, Xilong Scientific and FJIP, which was $298,000 and $463,000 in the three and nine months ended September 30, 2021, respectively.

Liquidity and Capital Resources

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We had $214.9 million in cash and cash equivalents and $662.4 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.

government and U.S.

agency debt securities, as of September 30, 2021 .

We had $87.4 million in cash and cash equivalents and $344.4 million in marketable securities, consisting of equity securities and 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.

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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.

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.

On November 13, 2019, we entered into a Purchase Agreement with Piper, as representative of the several underwriters, pursuant to which we sold 2 .7 million 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.

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

During the 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.

During the three months ended September 30, 2021, the Company did not sell any shares of its common stock 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, which resulted in $58.2 million of net proceeds to the Company.

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

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Moreover, we may incur substantial costs in pursuing future capital, including investment banking, legal and accounting fees, printing and distribution expenses and other similar costs.

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

For example, the COVID-19 pandemic has caused disruption and volatility in the global capital markets, which could reduce our ability to access capital.

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Operating Activities

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

Cash provided by operating activities in the nine months ended September 30, 2021 was $461.5 million.

The difference between net income and cash provided by operating activities for the period was primarily due to the effects of $10.9 million in equity-based compensation expenses and $7.5 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.

Cash provided by operating activities increased between periods primarily due to a decrease of $65.0 million in trade receivable due to timing of payments, an increase of $40.9 million in customer deposit due to payments received from customer in excess of their outstanding trade accounts receivable balances, partially offset by the negative impact of decreases of $35.4 million in income tax payable due to the estimated tax payments made during the current period, $18.7 million in contract liabilities due to the timing of payments, $9.0 million in accounts payable due to the timing of payments, and an increase of $2.1 million in other current and long-term assets related to additions in reagents and supplies.

Cash provided by operating activities in the nine months ended September 30, 2020 was $6.4 million.

The difference between net income and cash provided by operating activities for the period and the increase between periods of cash provided by operating activities was primarily due to increases of $84.6 million in accounts receivable mainly due to timing of collections from customers and increased revenue and $19.2 million in other current assets related to purchases of an increased amount of reagents and supplies, $1.1 million in deferred tax related to the reduction in the valuation allowance, partially offset by increases of $22.2 million in accrued and other liabilities related to contract liabilities, $14.7 million in accounts payable due to the timing of payments, $14.6 million in income tax payable related to increased net income, and the effects of $5.2 million in equity-based compensation expenses, $2.6 million in impairment loss in equity-method investment related to BostonMolecules, $1.8 million in the depreciation of assets, and $631,000 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.

Cash used in investing activities in the nine months ended September 30, 2021 was $406.3 million , which primarily related to purchases of $523.9 million of marketable securities, $61.9 million related to business acquisitions, and the purchase of $17.8 million of fixed assets consisting mainly of medical laboratory equipment and building construction, partially offset by proceeds of $155.8 million related to sales of marketable securities and $61.5 million related to maturities of marketable securities .

Cash used in investing activities in the nine months ended September 30, 2020 was $7.7 million, which is primarily related to purchases of $13.6 million of marketable securities and $11.3 million of fixed assets consisting mainly of a 2008 Cessna Citation Sovereign aircraft, medical laboratory equipment, leasehold improvements, and computer hardware, $2.6 million in investment in BostonMolecules and direct costs associates with the investment, purchase of $1.4 million of equipment contributed to FF Gene, partially offset by proceeds of $13.1 million related to maturities of marketable securities and $8.1 million related to sales 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.

Cash provided by financing activities in the nine months ended September 30, 2021 was $72.3 million, which primarily represents net proceeds from the November 2020 Equity Distribution Agreement.

Cash provided by financing activities in the nine months ended September 30, 2020 was $42.3 million, which primarily represents net proceeds from the 2019 Equity Distribution Agreement and the September 2020 Equity Distribution Agreement.

Critical Accounting Policies and Use of Estimates

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis