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ff

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37894

 

FULGENT GENETICS, INC.

(exact name of registrant as specified in its charter)

 

 

Delaware

81-2621304

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

4978 Santa Anita Avenue

Temple City, CA

91780

(Address of principal executive offices)

(Zip Code)

 

(626) 350-0537

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

FLGT

 

The Nasdaq Stock Market
(Nasdaq Global Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of May 1, 2022, there were 30,327,203 outstanding shares of the registrant’s common stock.

 

 


Table of Contents

 

 

Page

PART I—FINANCIAL INFORMATION

1

Item 1. Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Income

2

Condensed Consolidated Statements of Comprehensive Income

3

Condensed Consolidated Statements of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to the Condensed Consolidated Financial Statements

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk

27

Item 4. Controls and Procedures

27

PART II—OTHER INFORMATION

28

Item 1. Legal Proceedings

28

Item 1A. Risk Factors

28

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 5. Other Information

29

Item 6. Exhibits

29

Exhibit Index

30

Signatures

31

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FULGENT GENETICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except par value data)

(unaudited)

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

353,069

 

 

$

164,894

 

Marketable securities

 

232,045

 

 

 

285,605

 

Trade accounts receivable, net of allowance for credit losses of $22,126 and $11,217

 

160,261

 

 

 

138,912

 

Other current assets

 

19,958

 

 

 

22,549

 

Total current assets

 

765,333

 

 

 

611,960

 

Marketable securities, long-term

 

493,182

 

 

 

485,047

 

Redeemable preferred stock investment

 

17,609

 

 

 

21,965

 

Fixed assets, net

 

68,622

 

 

 

62,287

 

Intangible assets, net

 

35,037

 

 

 

35,914

 

Goodwill

 

50,999

 

 

 

50,897

 

Other long-term assets

 

34,808

 

 

 

10,650

 

Total assets

$

1,465,590

 

 

$

1,278,720

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

23,699

 

 

$

20,494

 

Accrued liabilities

 

11,847

 

 

 

17,689

 

Income tax payable

 

52,163

 

 

 

787

 

Contract liabilities

 

14,102

 

 

 

14,570

 

Customer deposit

 

17,729

 

 

 

19,806

 

Investment margin loan

 

14,999

 

 

 

15,137

 

Contingent consideration

 

 

 

 

10,000

 

Notes payable, current portion

 

6,086

 

 

 

6,147

 

Other current liabilities

 

1,089

 

 

 

680

 

Total current liabilities

 

141,714

 

 

 

105,310

 

Unrecognized tax benefits

 

1,210

 

 

 

725

 

Other long-term liabilities

 

9,706

 

 

 

6,805

 

Total liabilities

 

152,630

 

 

 

112,840

 

Commitments and contingencies (Note 8)

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $0.0001 par value per share, 50,000 shares authorized, 30,327 and 30,160 shares issued and outstanding

 

3

 

 

 

3

 

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

 

 

 

 

 

Additional paid-in capital

 

507,046

 

 

 

501,908

 

Accumulated other comprehensive loss

 

(12,493

)

 

 

(759

)

Retained earnings

 

811,576

 

 

 

657,597

 

Total Fulgent stockholders' equity

 

1,306,132

 

 

 

1,158,749

 

Noncontrolling interest

 

6,828

 

 

 

7,131

 

Total stockholders’ equity

 

1,312,960

 

 

 

1,165,880

 

Total liabilities and stockholders’ equity

$

1,465,590

 

 

$

1,278,720

 

 

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

1


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Revenue

$

320,268

 

 

$

359,429

 

Cost of revenue

 

77,725

 

 

 

74,075

 

Gross profit

 

242,543

 

 

 

285,354

 

Operating expenses:

 

 

 

 

 

Research and development

 

5,989

 

 

 

5,422

 

Selling and marketing

 

7,940

 

 

 

5,008

 

General and administrative

 

25,775

 

 

 

8,002

 

Amortization of intangible assets

 

906

 

 

 

 

Total operating expenses

 

40,610

 

 

 

18,432

 

Operating income

 

201,933

 

 

 

266,922

 

Interest and other income, net

 

45

 

 

 

282

 

Income before income taxes

 

201,978

 

 

 

267,204

 

Provision for income taxes

 

48,421

 

 

 

66,513

 

Net income from consolidated operations

 

153,557

 

 

 

200,691

 

Net loss attributable to noncontrolling interests

 

422

 

 

 

 

Net income attributable to Fulgent

$

153,979

 

 

$

200,691

 

 

 

 

 

 

 

Net income per common share attributable to Fulgent:

 

 

 

 

 

Basic

$

5.09

 

 

$

6.96

 

Diluted

$

4.93

 

 

$

6.52

 

 

 

 

 

 

 

Weighted-average common shares:

 

 

 

 

 

Basic

 

30,234

 

 

 

28,831

 

Diluted

 

31,240

 

 

 

30,770

 

 

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

 

2


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Net income from consolidated operations

$

153,557

 

 

$

200,691

 

Other comprehensive income (loss):

 

 

 

 

 

Foreign currency translation gain

 

123

 

 

 

 

Net loss on available-for-sale debt securities, net of tax

 

(11,738

)

 

 

(654

)

Comprehensive income from consolidated operations

 

141,942

 

 

 

200,037

 

Net loss attributable to noncontrolling interest

 

422

 

 

 

 

Foreign currency translation gain attributable to noncontrolling interest

 

(119

)

 

 

 

Comprehensive loss attributable to noncontrolling interest

 

303

 

 

 

 

Comprehensive income attributable to Fulgent

$

142,245

 

 

$

200,037

 

 

 

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

3


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

 

Fulgent Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
 Paid-In Capital

 

 

Accumulated
Other Comprehensive
Loss

 

 

Retained Earnings

 

 

Fulgent Stockholders' Equity

 

 

Noncontrolling Interest

 

 

Total
Equity

 

Balance at December 31, 2021

 

 

30,160

 

 

$

3

 

 

$

501,908

 

 

$

(759

)

 

$

657,597

 

 

$

1,158,749

 

 

$

7,131

 

 

$

1,165,880

 

Equity-based compensation

 

 

 

 

 

 

 

 

5,616

 

 

 

 

 

 

 

 

 

5,616

 

 

 

 

 

 

5,616

 

Exercise of common stock options

 

 

3

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

16

 

Restricted stock awards

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withholding for employee tax obligations

 

 

(8

)

 

 

 

 

 

(494

)

 

 

 

 

 

 

 

 

(494

)

 

 

 

 

 

(494

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(11,734

)

 

 

 

 

 

(11,734

)

 

 

119

 

 

 

(11,615

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153,979

 

 

 

153,979

 

 

 

(422

)

 

 

153,557

 

Balance at March 31, 2022

 

 

30,327

 

 

$

3

 

 

$

507,046

 

 

$

(12,493

)

 

$

811,576

 

 

$

1,306,132

 

 

$

6,828

 

 

$

1,312,960

 

 

 

 

Fulgent Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
 Paid-In Capital

 

 

Accumulated
Other Comprehensive
Income (Loss)

 

 

Retained Earnings

 

 

Total
Equity

 

Balance at December 31, 2020

 

28,178

 

 

$

3

 

 

$

418,065

 

 

$

438

 

 

$

150,881

 

 

$

569,387

 

Equity-based compensation

 

 

 

 

 

 

 

2,962

 

 

 

 

 

 

 

 

 

2,962

 

Exercise of common stock options

 

45

 

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

44

 

Restricted stock awards

 

187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withholding for employee tax obligations

 

(4

)

 

 

 

 

 

(513

)

 

 

 

 

 

 

 

 

(513

)

Issuance of common stock at an average of $52.00 per share, net

 

583

 

 

 

 

 

 

30,297

 

 

 

 

 

 

 

 

 

30,297

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(654

)

 

 

 

 

 

(654

)

Cumulative effect of accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

(887

)

 

 

(887

)

Cumulative tax effect of accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

239

 

 

 

239

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

200,691

 

 

 

200,691

 

Balance at March 31, 2021

 

28,989

 

 

$

3

 

 

$

450,855

 

 

$

(216

)

 

$

350,924

 

 

$

801,566

 

 

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

4


FULGENT GENETICS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flow from operating activities:

 

 

 

 

 

 

Net income from consolidated operations

 

$

153,557

 

 

$

200,691

 

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

 

 

 

 

 

 

Equity-based compensation

 

 

5,616

 

 

 

2,962

 

Depreciation and amortization

 

 

4,695

 

 

 

1,922

 

Noncash lease expense

 

 

477

 

 

 

82

 

Loss on disposal of fixed asset

 

 

250

 

 

 

223

 

Amortization of premium of marketable securities

 

 

1,910

 

 

 

1,303

 

Provision for credit losses

 

 

11,574

 

 

 

1,064

 

Deferred taxes

 

 

(5,497

)

 

 

(786

)

Unrecognized tax benefits

 

 

485

 

 

 

96

 

Net loss on marketable securities

 

 

513

 

 

 

345

 

Other

 

 

15

 

 

 

(8

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

(32,924

)

 

 

(34,595

)

Other current and long-term assets

 

 

2,962

 

 

 

(9,109

)

Accounts payable

 

 

2,110

 

 

 

(6,256

)

Income tax payable

 

 

51,376

 

 

 

67,203

 

Accrued liabilities and other liabilities

 

 

(8,231

)

 

 

8,124

 

Operating and finance lease liabilities

 

 

(477

)

 

 

(82

)

Net cash provided by operating activities

 

 

188,411

 

 

 

233,179

 

Cash flow from investing activities:

 

 

 

 

 

 

Purchases of fixed assets

 

 

(5,360

)

 

 

(11,492

)

Proceeds from sale of fixed assets

 

 

14

 

 

 

13

 

Purchase of marketable securities

 

 

(130,133

)

 

 

(219,470

)

Investment in private equity securities

 

 

(15,000

)

 

 

 

Proceeds from sale of marketable securities

 

 

133,407

 

 

 

 

Maturities of marketable securities

 

 

27,760

 

 

 

14,458

 

Contingent consideration payout related to a business acquisition

 

 

(10,000

)

 

 

 

Net cash provided by (used in) investing activities

 

 

688

 

 

 

(216,491

)

Cash flow from financing activities:

 

 

 

 

 

 

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

 

 

 

 

 

47,787

 

Proceeds from exercise of stock options

 

 

16

 

 

 

44

 

Common stock withholding for employee tax obligations

 

 

(494

)

 

 

(513

)

Repayment of notes payable

 

 

(375

)

 

 

 

Principal paid for finance lease

 

 

(81

)

 

 

 

Borrowing under margin account

 

 

 

 

 

29

 

Net cash (used in) provided by financing activities

 

 

(934

)

 

 

47,347

 

Effect of exchange rate changes on cash and cash equivalents

 

 

10

 

 

 

 

Net increase in cash and cash equivalents

 

 

188,175

 

 

 

64,035

 

Cash and cash equivalents at beginning of period

 

 

164,894

 

 

 

87,426

 

Cash and cash equivalents at end of period

 

$

353,069

 

 

$

151,461

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Income taxes paid

 

$

435

 

 

$

33

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

Purchases of fixed assets in accounts payable

 

$

2,054

 

 

$

801

 

Purchases of fixed assets in notes payable

 

$

3,833

 

 

$

 

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

 

$

 

 

$

368

 

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

 

$

 

 

$

185

 

Public offerings costs included in accounts payable

 

$

 

 

$

50

 

 

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

5


FULGENT GENETICS, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

 

Note 1. Overview and Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. These financial statements include the assets, liabilities, revenues and expenses of all subsidiaries and entities in which the Company has a controlling financial interest or is deemed to be the primary beneficiary. In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both (i) the power to direct the economically significant activities of the entity and (ii) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. The Company uses the equity method to account for i