Revenue Growth - Revenue increased by $4.7 million, or 84%, from $5.6 million in Q3 2018 to $10.3 million in Q3 2019[113] - Revenue for the nine months ended September 30, 2019, was $24.1 million, an increase of $8.5 million, or 54%, from $15.7 million in the same period in 2018[113] - Revenue from a group of affiliated customers contributed 40% and 33% of total revenues in Q3 2019 and the nine months ended September 30, 2019, respectively[117] Test Delivery Metrics - The number of billable tests delivered increased to 20,697 in Q3 2019, a 272% increase from 5,569 in Q3 2018[111] - The number of billable tests delivered increased by 15,128, from 5,569 in Q3 2018 to 20,697 in Q3 2019, and increased by 28,706, from 15,890 in the nine months ended September 30, 2018 to 44,596 in the same period of 2019[116] - Compound quarterly growth of 26% in the number of billable tests delivered over the last eight completed fiscal quarters[106] Pricing and Cost Efficiency - Average price per billable test delivered decreased from $1,010 in Q3 2018 to $500 in Q3 2019, a 50% decline[114] - Cost per billable test delivered decreased from $469 in Q3 2018 to $188 in Q3 2019, a 60% reduction[111] - Cost per billable test delivered decreased by $281, or 60%, from $469 in Q3 2018 to $188 in Q3 2019, and decreased by $264, or 53%, from $499 to $235 in the nine months ended September 30, 2018 and 2019, respectively[120] Profitability - Gross profit for Q3 2019 was $6.5 million, a 114% increase from $3.0 million in Q3 2018[111] - Net income for Q3 2019 was $1.5 million, compared to a net loss of $595,000 in Q3 2018[111] - The company achieved profitability in Q2 and Q3 of 2019, but recorded losses in all other periods since inception[106] Cost of Revenue - Cost of revenue increased by $1.3 million, or 49%, from $2.6 million in Q3 2018 to $3.9 million in Q3 2019, and increased by $2.5 million, or 32%, from $7.9 million in the nine months ended September 30, 2018 to $10.5 million in the same period of 2019[118][119] Operating Expenses - Research and development expenses increased by $306,000, or 21%, from $1.4 million in Q3 2018 to $1.7 million in Q3 2019, and increased by $634,000, or 15%, from $4.1 million to $4.7 million in the nine months ended September 30, 2018 and 2019, respectively[123][124] - Selling and marketing expenses increased by $572,000, or 51%, from $1.1 million in Q3 2018 to $1.7 million in Q3 2019, and increased by $739,000, or 21%, from $3.5 million to $4.3 million in the nine months ended September 30, 2018 and 2019, respectively[125][126] - General and administrative expenses increased by $216,000, or 17%, from $1.3 million in Q3 2018 to $1.5 million in Q3 2019, and increased by $523,000, or 13%, from $4.2 million to $4.7 million in the nine months ended September 30, 2018 and 2019, respectively[127][128] Cash Flow and Financial Position - Cash provided by operating activities for the nine months ended September 30, 2019 was $5.6 million, an increase from a cash used of $1.5 million in the same period of 2018[143][144] - Cash provided by investing activities in the nine months ended September 30, 2019 was $7.0 million, compared to $3.5 million in the same period of 2018[145][146] - Cash provided by financing activities for the nine months ended September 30, 2019 was $1.1 million, while financing activities in the same period of 2018 were minimal[147][149] - As of September 30, 2019, the company had $6.7 million in cash and cash equivalents and $30.7 million in marketable securities[135] Accounting and Compliance - The company has opted out of the extended transition period under the JOBS Act, committing to comply with new accounting standards as they are adopted[154] - There were no significant changes to critical accounting policies and estimates from the 2018 Annual Report[152] - The company currently has no off-balance sheet arrangements that could materially affect its financial condition[156]

Financial Data and Key Metrics Changes - Revenue growth of 84% year-over-year to a record $10.3 million in Q3 2019 [10][28] - Billable tests increased by 272% year-over-year to a new record high of 20,697 [11][29] - Non-GAAP gross margin improved to 64%, up approximately 8 percentage points year-over-year [11][30] - GAAP income was $1.5 million, while non-GAAP income was $2.6 million, with non-GAAP earnings per share at $0.14 [12][34] - Cash provided by operating activities was approximately $3.9 million, compared to $675,000 in the previous quarter [35][36] Business Line Data and Key Metrics Changes - Strong demand for oncology tests and reproductive health business, particularly hereditary cancer panels [13] - Increased demand for sequencing service business from channel partners in genomics [14] - New test offerings, including a reproductive health test for IVF, contributing to growth [26] Market Data and Key Metrics Changes - U.S. business revenue grew 159% year-over-year, representing 82% of total revenue [28][29] - ASP remained flat at $500 per test, with cost per test improving to $179 [11][29] - The company anticipates fluctuations in short-term demand as it diversifies its business [16] Company Strategy and Development Direction - Focus on commercialization strategy, including international growth and collaborations with key medical institutions [41] - Emphasis on maintaining a sustainable business model while driving down costs [56] - Introduction of Picture Genetics, a consumer genetic testing offering, aimed at expanding market reach [22][24] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about market position and growth opportunities despite potential fluctuations in demand [15][37] - Anticipation of approximately $8 million in revenue for Q4, leading to a full-year revenue estimate of $32 million, representing a 50% growth rate [39] - Confidence in the company's ability to sustain growth and manage operational efficiencies [70] Other Important Information - The company has no debt and ended the quarter with $43.6 million in cash and equivalents [36] - Continued investment in research and development to enhance test offerings [26] Q&A Session Summary Question: Key drivers of volume growth and outlook for Q4 - Management noted that growth was driven by new test introductions and strong demand in oncology and reproductive health [44][45] Question: Pricing environment and ASP dynamics - Management acknowledged competitive pricing pressures but emphasized maintaining a sustainable business model with strong gross margins [56][58] Question: Product mix and payer network dynamics - Management indicated strong demand for carrier screening tests and noted ongoing relationships with cancer research institutions [61][63] Question: Volume growth drivers and operational capabilities - Management highlighted the impact of technology investments and operational efficiencies in handling increased volume [66][70]

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 June 30, 2019 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 jurisdict ...

Fulgent Genetics, Inc. (NASDAQ:FLGT) Q2 2019 Earnings Conference Call August 5, 2019 4:30 PM ET Company Participants Nicole Borsje - Head, IR Ming Hsieh - CEO Paul Kim - CFO Conference Call Participants Operator Good day, ladies and gentlemen, and welcome to the Q2 2019 Fulgent Genetics Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Ms. Nicole Borsje from Investor Relations. Ma'am, please go ah ...

Fulgent Genetics, Inc. (NASDAQ:FLGT) Q1 2019 Results Earnings Conference Call May 7, 2019 4:30 PM ET Company Participants Nicole Borsje - Head of Investor Relations Ming Hsieh - Chief Executive Officer Paul Kim - Chief Financial Officer Conference Call Participants Operator Good day, ladies and gentlemen, and welcome to the Q1 2019 Fulgent Genetics Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce your host for conference cal ...

[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Q1 2019 [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements for Q1 2019, including balance sheets, operations, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Balance Sheet Summary | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:----------------------------|:------------------------------|:---------------------------------| | Total Current Assets | $36,301 | $39,543 | | Total Assets | $55,652 | $53,904 | | Total Current Liabilities | $3,203 | $2,738 | | Total Liabilities | $5,691 | $2,752 | | Total Stockholders' Equity | $49,961 | $51,152 | - Total assets increased by **$1.748 million** from December 31, 2018, to March 31, 2019, primarily driven by an increase in long-term marketable securities and the recognition of operating lease right-of-use assets[8](index=8&type=chunk) - Total liabilities significantly increased by **$2.939 million**, mainly due to the adoption of the new lease standard (ASC 842), which resulted in the recognition of operating lease liabilities[8](index=8&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's financial performance over a period, detailing revenues, expenses, and net loss Statements of Operations Summary | Metric (in thousands, except per share data) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---------------------------------------------|:----------------------------------|:----------------------------------| | Revenue | $5,370 | $4,653 | | Cost of revenue | $2,968 | $2,772 | | Gross profit | $2,402 | $1,881 | | Total operating expenses | $4,225 | $4,075 | | Operating loss | $(1,823) | $(2,194) | | Net loss | $(1,908) | $(1,910) | | Net loss per common share (Basic & Diluted) | $(0.10) | $(0.11) | - Revenue increased by **15.4% year-over-year**, from **$4.653 million** in Q1 2018 to **$5.370 million** in Q1 2019[10](index=10&type=chunk) - Operating loss improved by **16.9% year-over-year**, from **$(2.194) million** in Q1 2018 to **$(1.823) million** in Q1 2019[10](index=10&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This section details the company's comprehensive income or loss, including net loss and other comprehensive income items Comprehensive Income (Loss) Summary | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:----------------------------------------------------|:----------------------------------|:----------------------------------| | Net loss | $(1,908) | $(1,910) | | Foreign currency translation gain | $15 | $22 | | Net unrealized gain (loss) on marketable securities | $115 | $(65) | | Comprehensive loss | $(1,778) | $(1,953) | - The company reported a comprehensive loss of **$(1.778) million** in Q1 2019, an improvement from **$(1.953) million** in Q1 2018, primarily due to a net unrealized gain on marketable securities[13](index=13&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in the company's equity accounts over a period, including net loss and equity-based compensation Stockholders' Equity Summary | Metric (in thousands) | Balance at Dec 31, 2018 | Equity-based Compensation | Exercise of Stock Options | Restricted Stock Awards | Other Comprehensive Loss, Net | Net Loss | Balance at Mar 31, 2019 | |:----------------------------------|:------------------------|:--------------------------|:--------------------------|:------------------------|:------------------------------|:-----------|:------------------------| | Common Stock Amount | $2 | — | — | — | — | — | $2 | | Additional Paid-In Capital | $114,203 | $583 | $4 | — | — | — | $114,790 | | Accumulated Other Comprehensive | $(35) | — | — | — | $130 | — | $95 | | Accumulated Deficit | $(63,018) | — | — | — | — | $(1,908) | $(64,926) | | Total Equity | $51,152 | $583 | $4 | — | $130 | $(1,908) | $49,961 | - Total stockholders' equity decreased from **$51.152 million** at December 31, 2018, to **$49.961 million** at March 31, 2019, primarily due to the net loss, partially offset by equity-based compensation and other comprehensive income[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the company across operating, investing, and financing activities Cash Flow Summary | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:----------------------------------------------------|:----------------------------------|:----------------------------------| | Net cash provided by (used in) operating activities | $1,055 | $(1,291) | | Net cash (used in) provided by investing activities | $(2,522) | $51 | | Net cash provided by financing activities | $4 | $2 | | Net decrease in cash | $(1,448) | $(1,216) | | Cash balance at end of period | $5,288 | $5,274 | - Operating activities generated **$1.055 million** in cash in Q1 2019, a significant improvement from cash used of **$(1.291) million** in Q1 2018[20](index=20&type=chunk) - Investing activities used **$(2.522) million** in Q1 2019, primarily due to purchases of marketable securities, compared to cash provided of **$51 thousand** in Q1 2018[20](index=20&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Overview and Basis of Presentation](index=8&type=section&id=Note%201.%20Overview%20and%20Basis%20of%20Presentation) This note describes the company's business and the foundational principles for preparing its financial statements - Fulgent Genetics, Inc. is a technology company focused on comprehensive genetic testing, utilizing a proprietary platform combining next-generation sequencing (NGS) with a genetic reference library to provide clinically actionable diagnostic information[23](index=23&type=chunk) - The financial statements are prepared in accordance with U.S. GAAP and include wholly-owned subsidiaries and entities where the Company has a controlling financial interest or is the primary beneficiary, using the equity method for significant influence without control[22](index=22&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=8&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods applied in the financial statements, including recent standard adoptions - The Company adopted ASU No. 2016-02 (Leases) on January 1, 2019, using a modified retrospective approach, resulting in the recognition of approximately **$3.0 million** in operating lease liabilities and corresponding right-of-use assets, with no impact on retained earnings[39](index=39&type=chunk) - In Q1 2019, two customers accounted for **20%** and **11%** of total revenue, while in Q1 2018, one customer contributed **13%** of revenue, indicating a concentration of customers[32](index=32&type=chunk) Revenue Disaggregation by Payor | Genetic Testing Services by Payor (in thousands) | 2019 | 2018 | |:-------------------------------------------------|:------|:-----| | Institutional | $5,119 | $4,477 | | Patient | $102 | $103 | | Insurance | $149 | $73 | | Total Revenue | $5,370 | $4,653 | [Note 3. Marketable Securities](index=11&type=section&id=Note%203.%20Marketable%20Securities) This note details the company's marketable securities, including their fair values and unrealized gains or losses Marketable Securities Fair Value | Marketable Securities (in thousands) | March 31, 2019 Fair Value | December 31, 2018 Fair Value | |:-------------------------------------|:--------------------------|:-----------------------------| | Total short-term marketable securities | $24,139 | $24,298 | | Total long-term marketable securities | $8,983 | $6,386 | | Total marketable securities | $33,122 | $30,684 | - The Company's marketable securities increased from **$30.684 million** at December 31, 2018, to **$33.122 million** at March 31, 2019, with long-term securities showing a notable increase[46](index=46&type=chunk) - Gross unrealized losses on marketable securities decreased from **$104,000** at December 31, 2018, to **$44,000** at March 31, 2019, and were determined to be temporary in nature[47](index=47&type=chunk) [Note 4. Fair Value Measurements](index=12&type=section&id=Note%204.%20Fair%20Value%20Measurements) This note provides information on the fair value hierarchy used for valuing financial instruments, particularly marketable securities Fair Value Measurement Hierarchy | Marketable Securities (in thousands) | March 31, 2019 Total Fair Value | Level 1 | Level 2 | Level 3 | |:-------------------------------------|:--------------------------------|:--------|:--------|:--------| | Corporate debt securities | $31,333 | — | $31,333 | — | | United States Treasury | $995 | — | $995 | — | | U.S. government agency securities | $794 | — | $794 | — | | Money market accounts | $500 | $500 | — | — | | Total marketable securities | $33,622 | $500 | $33,122 | — | - The majority of the Company's marketable securities are classified as Level 2 assets, valued based on observable inputs like reported trades and broker/dealer quotes, with no Level 3 investments as of March 31, 2019[49](index=49&type=chunk) [Note 5. Fixed Assets](index=13&type=section&id=Note%205.%20Fixed%20Assets) This note presents the company's fixed assets, including computer hardware, lab equipment, and accumulated depreciation Net Fixed Assets by Class | Fixed Asset Class (in thousands) | March 31, 2019 Net | December 31, 2018 Net | |:---------------------------------|:-------------------|:----------------------| | Computer hardware | $1,683 | $1,579 | | Medical lab equipment | $8,136 | $8,136 | | Assets not yet placed in service | $1,117 | $1,087 | | Total Fixed Assets, Net | $6,046 | $6,446 | - Net fixed assets decreased from **$6.446 million** at December 31, 2018, to **$6.046 million** at March 31, 2019, primarily due to accumulated depreciation[53](index=53&type=chunk) - Depreciation expense for Q1 2019 was **$535,000**, an increase from **$516,000** in Q1 2018[53](index=53&type=chunk) [Note 6. Significant Balance Sheet Accounts](index=13&type=section&id=Note%206.%20Significant%20Balance%20Sheet%20Accounts) This note provides a breakdown of other current assets, including reagents, prepaid expenses, and interest receivable Other Current Assets Breakdown | Other Current Assets (in thousands) | March 31, 2019 | December 31, 2018 | |:------------------------------------|:---------------|:------------------| | Reagents | $423 | $314 | | Prepaid expenses | $987 | $706 | | Prepaid income taxes | $596 | $1,251 | | Marketable securities interest receivable | $288 | $220 | | Total | $2,311 | $2,561 | - Total other current assets decreased from **$2.561 million** at December 31, 2018, to **$2.311 million** at March 31, 2019, mainly due to a decrease in prepaid income taxes[54](index=54&type=chunk) [Note 7. Reporting Segment and Geographic Information](index=13&type=section&id=Note%207.%20Reporting%20Segment%20and%20Geographic%20Information) This note details the company's single operating segment and disaggregates revenue by geographic region - The Company operates as a single reporting segment, with all long-lived assets located in the United States[55](index=55&type=chunk) Geographic Revenue Breakdown | Revenue by Region (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---------------------------------|:----------------------------------|:----------------------------------| | United States | $3,614 | $2,527 | | Canada | $538 | $970 | | Other Countries | $1,219 | $1,156 | | Total Revenue | $5,370 | $4,653 | - U.S. revenue increased by **43% year-over-year**, while Canadian revenue decreased by **44.6%** in Q1 2019[55](index=55&type=chunk) [Note 8. Commitments and Contingencies](index=14&type=section&id=Note%208.%20Commitments%20and%20Contingencies) This note outlines the company's non-cancelable purchase obligations and potential impacts from legal proceedings - As of March 31, 2019, the Company had non-cancelable purchase obligations of **$5.0 million** for reagents, with **$4.1 million** payable within the next twenty-four months[59](index=59&type=chunk) - The Company is subject to legal proceedings in the ordinary course of business but management does not believe the outcome of any current matters will have a material effect on its financial position[60](index=60&type=chunk) [Note 9. Leases](index=14&type=section&id=Note%209.%20Leases) This note details the impact of adopting the new lease accounting standard, including right-of-use assets and lease liabilities - Upon adopting ASC 842 on January 1, 2019, the Company recognized **$3.0 million** in ROU assets and **$384,000** in short-term and **$2.6 million** in long-term operating lease liabilities[64](index=64&type=chunk) - The weighted-average remaining lease term for operating leases is **6.3 years**, with a weighted-average discount rate of **6.25%** as of March 31, 2019[67](index=67&type=chunk) Operating Lease Maturity Analysis | Operating Lease Liabilities Maturity Analysis (in thousands) | |:-------------------------------------------------------------| | Year Ending December 31, 2019 (remaining 9 months) | $421 | | 2020 | $559 | | 2021 | $550 | | 2022 | $558 | | 2023 | $567 | | 2024 | $330 | | Thereafter | $532 | | Total lease payments | $3,517 | | Less imputed interest | $(636) | | Total | $2,881 | [Note 10. Equity-Based Compensation](index=15&type=section&id=Note%2010.%20Equity-Based%20Compensation) This note presents the breakdown of equity-based compensation expense across various functional areas Equity-Based Compensation Expense Summary | Equity-Based Compensation Expense (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:-------------------------------------------------|:----------------------------------|:----------------------------------| | Cost of revenue | $142 | $124 | | Research and development | $178 | $132 | | Selling and marketing | $125 | $108 | | General and administrative | $138 | $181 | | Total | $583 | $545 | - Total equity-based compensation expense increased by **$38,000**, or **7%**, from **$545,000** in Q1 2018 to **$583,000** in Q1 2019[68](index=68&type=chunk) [Note 11. Income Taxes](index=16&type=section&id=Note%2011.%20Income%20Taxes) This note explains the company's income tax provision and the factors influencing its effective tax rate - The effective tax rate for Q1 2019 was **-1%**, a significant change from **21%** in Q1 2018, primarily due to a full valuation allowance[72](index=72&type=chunk) - Provision for income taxes was **$13,000** in Q1 2019, compared to a benefit of **$(434,000)** in Q1 2018[72](index=72&type=chunk)[114](index=114&type=chunk) [Note 12. Loss per Share](index=16&type=section&id=Note%2012.%20Loss%20per%20Share) This note details the calculation of basic and diluted net loss per common share, including anti-dilutive securities Loss per Share Calculation | Loss per Share (in thousands, except per share data) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:-----------------------------------------------------|:----------------------------------|:----------------------------------| | Net loss | $(1,908) | $(1,910) | | Weighted-average common shares—outstanding, basic | 18,228 | 17,864 | | Weighted-average common shares—outstanding, diluted | 18,228 | 17,864 | | Net loss per common share, basic | $(0.10) | $(0.11) | | Net loss per common share, diluted | $(0.10) | $(0.11) | - Basic and diluted net loss per common share improved slightly from **$(0.11)** in Q1 2018 to **$(0.10)** in Q1 2019[73](index=73&type=chunk) - Outstanding stock options (**400k**) and RSUs (**1,068k**) were excluded from diluted EPS calculation in Q1 2019 due to the Company's net loss position, making them anti-dilutive[73](index=73&type=chunk) [Note 13. Related Party](index=16&type=section&id=Note%2013.%20Related%20Party) This note discloses transactions and relationships with related parties, including a joint venture and service agreements - The Company performs genetic sequencing services for Taipei Medical University, recognizing **$13,000** in revenue in Q1 2019 (vs. **$9,000** in Q1 2018), with **$63,000** owed by the University as of March 31, 2019[77](index=77&type=chunk) - The Company has a joint venture, FF Gene Biotech, with Xilong Scientific Co., Ltd. (a large stockholder) and Fuzhou Jinqiang Investment Partnership (LP), formed to offer genetic testing in the PRC[78](index=78&type=chunk) - Fulgent Pharma, a related entity, reimburses the Company for facility rent, with **$17,000** due from Fulgent Pharma as of March 31, 2019[79](index=79&type=chunk) [Note 14. Equity Method Investments](index=17&type=section&id=Note%2014.%20Equity%20Method%20Investments) This note describes the company's investment in its joint venture, accounted for using the equity method - The Company holds a **30%** ownership interest in FF Gene Biotech, a joint venture in the PRC, and accounts for it using the equity method[80](index=80&type=chunk)[82](index=82&type=chunk)[86](index=86&type=chunk) - As of March 31, 2019, **$6.0 million** (**40.3 million RMB**) remains to be contributed to FF Gene Biotech under the JV agreement, with **$3.0 million** already contributed in equipment[80](index=80&type=chunk) - The Company recorded an equity loss in investee of **$279,000** in Q1 2019, reflecting its proportionate share of FF Gene Biotech's losses[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of Q1 2019 financial condition and results, covering revenue, liquidity, and critical accounting policies [Overview](index=19&type=section&id=Overview) This section provides a high-level summary of the company's business model, strategic focus, and key financial highlights for the period - Fulgent Genetics is a growing technology company focused on comprehensive genetic testing, leveraging a proprietary platform for broad test menus, accessible pricing, high accuracy, and competitive turnaround times[92](index=92&type=chunk) - The Company delivered **7,530 billable tests** in Q1 2019, a **63% increase** from **4,621 tests** in Q1 2018, with a compound quarterly growth of **10%** over the last eight quarters[94](index=94&type=chunk)[99](index=99&type=chunk) Key Operating Metrics Summary | Metric (Q1 2019 vs Q1 2018) | Q1 2019 (in millions) | Q1 2018 (in millions) | |:----------------------------|:----------------------|:----------------------| | Revenue | $5.4 | $4.7 | | Net Loss | $(1.9) | $(1.9) | [Business Risks and Uncertainties and Other Factors Affecting Our Performance](index=20&type=section&id=Business%20Risks%20and%20Uncertainties%20and%20Other%20Factors%20Affecting%20Our%20Performance) This section highlights the various risks and external factors that could impact the company's operational and financial performance - The Company's business and prospects are exposed to numerous risks and uncertainties, detailed in 'Item 1A. Risk Factors' in Part II of this report[96](index=96&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, examining revenue, expenses, and profitability trends Key Operating Metrics Summary | Statement of Operations Data (in thousands) | March 31, 2019 | March 31, 2018 | $ Change | % Change | |:--------------------------------------------|:---------------|:---------------|:---------|:---------| | Revenue | $5,370 | $4,653 | $717 | 15% | | Cost of revenue | $2,968 | $2,772 | $196 | 7% | | Gross profit | $2,402 | $1,881 | $521 | 28% | | Total operating expenses | $4,225 | $4,075 | $150 | 4% | | Operating loss | $(1,823) | $(2,194) | $371 | (17)% | | Net loss | $(1,908) | $(1,910) | $2 | (0)% | | Billable tests delivered | 7,530 | 4,621 | | 63% | | Average price per billable test delivered | $713 | $1,007 | | (29)% | | Cost per billable test delivered | $394 | $600 | | (34)% | [Revenue](index=20&type=section&id=Revenue) This section analyzes the drivers of revenue growth, including changes in test volume, pricing, and customer mix - Revenue increased by **$717,000** (**15%**) to **$5.4 million** in Q1 2019, primarily due to a **63% increase** in billable tests delivered (**7,530** in Q1 2019 vs. **4,621** in Q1 2018)[99](index=99&type=chunk)[100](index=100&type=chunk)[104](index=104&type=chunk) - The average price per billable test decreased by **29%** to **$713** in Q1 2019, attributed to a shift towards lower price-point tests (e.g., sequencing as a service), price reductions due to competition, and changes in customer mix[99](index=99&type=chunk)[101](index=101&type=chunk) - Non-U.S. revenue decreased by **$369,000** (**17%**) to **$1.8 million**, mainly due to a **$432,000** decrease in sales to Canadian customers, partially offset by increased sales in other countries[103](index=103&type=chunk) [Cost of Revenue](index=21&type=section&id=Cost%20of%20Revenue) This section examines the factors influencing the cost of delivering services and its impact on gross profit and margin - Cost of revenue increased by **$196,000** (**7%**) to **$3.0 million** in Q1 2019, primarily due to a **$187,000** increase in personnel costs[106](index=106&type=chunk) - Cost per billable test delivered decreased by **34%** to **$394** in Q1 2019, as the increase in test volume outpaced the increase in cost of revenue, leading to improved gross margin[99](index=99&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Gross profit increased by **$521,000**, and gross margin improved from **40.4%** in Q1 2018 to **44.7%** in Q1 2019[108](index=108&type=chunk) [Research and Development](index=21&type=section&id=Research%20and%20Development) This section details expenses related to innovation and product development, including personnel and supply costs - Research and development expenses decreased by **$34,000** (**2%**) to **$1.4 million** in Q1 2019, mainly due to a **$319,000** decrease in reagent and supply expenses[109](index=109&type=chunk) - This decrease was partially offset by increases in personnel costs (**$136,000**), stock-based compensation (**$46,000**), and depreciation costs (**$69,000**) related to headcount and technology investments[109](index=109&type=chunk) [Selling and Marketing](index=21&type=section&id=Selling%20and%20Marketing) This section analyzes expenses incurred to promote and sell the company's services, including personnel and marketing initiatives - Selling and marketing expenses increased by **$142,000** (**13%**) to **$1.3 million** in Q1 2019, primarily driven by a **$225,000** increase in personnel costs due to increased headcount[110](index=110&type=chunk) - This increase was partially offset by a **$93,000** decrease in marketing costs from initiatives in the prior period that did not recur[110](index=110&type=chunk) [General and Administrative](index=21&type=section&id=General%20and%20Administrative) This section reviews overhead expenses supporting overall business operations, such as personnel and accounting fees - General and administrative expenses remained relatively consistent at **$1.5 million** in Q1 2019 and Q1 2018[111](index=111&type=chunk) - Slight changes included increases in personnel costs (**$68,000**) and accounting fees (**$53,000**), offset by a decrease in equity-based compensation (**$43,000**) due to employee forfeitures[111](index=111&type=chunk) [Interest and Other Income](index=21&type=section&id=Interest%20and%20Other%20Income) This section reports income generated from investments and other non-operating sources, such as foreign currency gains - Interest income increased by **$88,000** to **$214,000** in Q1 2019 (vs. **$126,000** in Q1 2018), primarily from investments in marketable securities[112](index=112&type=chunk) - Other income was not significant in both periods, with foreign currency valuation gains/losses being the primary component[112](index=112&type=chunk) [Provision for (Benefit from) Income Taxes](index=22&type=section&id=Provision%20for%20%28Benefit%20from%29%20Income%20Taxes) This section discusses the company's income tax expense or benefit and the factors affecting its effective tax rate - The Company recorded a provision for income taxes of **$13,000** in Q1 2019, compared to a benefit of **$(434,000)** in Q1 2018[114](index=114&type=chunk) - The effective tax rate changed from **21%** in Q1 2018 to **-1%** in Q1 2019, primarily due to the application of a full valuation allowance[114](index=114&type=chunk) [Equity Loss in Investee](index=22&type=section&id=Equity%20Loss%20in%20Investee) This section details the company's share of losses from its equity method investment in a joint venture - Equity loss in investee increased by **$34,000** (**14%**) to **$279,000** in Q1 2019 (vs. **$245,000** in Q1 2018), related to the Company's **30%** ownership in the FF Gene Biotech joint venture[115](index=115&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations and fund operations - The Company believes its existing cash, cash from operations, and equity financings will be sufficient to meet anticipated cash requirements for at least the next 12 months[119](index=119&type=chunk) - Cash provided by operating activities has been mostly positive since 2015, significantly contributing to liquidity despite recorded losses, which are often attributable to non-cash charges[119](index=119&type=chunk) - The Company may require additional financing if cash from operations fluctuates or is insufficient, potentially leading to dilution, debt restrictions, or delays in growth plans[120](index=120&type=chunk)[123](index=123&type=chunk) [Liquidity and Sources of Cash](index=22&type=section&id=Liquidity%20and%20Sources%20of%20Cash) This section identifies the primary sources of funding and the company's overall cash position and marketable securities Liquidity Position | Metric (in millions) | March 31, 2019 | December 31, 2018 | |:--------------------------|:---------------|:------------------| | Cash and cash equivalents | $5.3 | $6.7 | | Marketable securities | $33.1 | $30.7 | - The Company's operations have been financed primarily by its founder and, more recently, by cash from operations and equity financings[117](index=117&type=chunk) - The Company has a remaining obligation of approximately **$6.0 million** (**40.3 million RMB**) to contribute equipment to its FF Gene Biotech joint venture[118](index=118&type=chunk) [Cash Flows](index=24&type=section&id=Cash%20Flows) This section summarizes the cash generated or used across operating, investing, and financing activities Cash Flow Summary by Activity | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:--------------------------------------------|:----------------------------------|:----------------------------------| | Cash provided by (used in) operations | $1,055 | $(1,291) | | Cash (used in) provided by investing activities | $(2,522) | $51 | | Cash provided by financing activities | $4 | $2 | [Operating Activities](index=24&type=section&id=Operating%20Activities) This section analyzes cash generated or used from the company's core business operations, including changes in working capital - Cash provided by operating activities was **$1.1 million** in Q1 2019, a significant increase from cash used of **$1.3 million** in Q1 2018[125](index=125&type=chunk)[126](index=126&type=chunk) - The improvement in Q1 2019 was primarily due to a **$1.4 million** decrease in accounts receivable, mainly from improved collection timing[125](index=125&type=chunk) - Adjustments reconciling net loss to operating cash flow included **$583,000** in equity-based compensation and **$535,000** in depreciation in Q1 2019[125](index=125&type=chunk) [Investing Activities](index=24&type=section&id=Investing%20Activities) This section details cash flows related to the purchase and sale of long-term assets and marketable securities - Cash used in investing activities was **$2.5 million** in Q1 2019, primarily for purchasing **$6.0 million** in marketable securities and **$134,000** in fixed assets, partially offset by **$3.6 million** from marketable securities maturities[127](index=127&type=chunk) - In contrast, Q1 2018 saw **$51,000** cash provided by investing activities, mainly from **$5.9 million** in marketable securities maturities, offset by **$4.7 million** in purchases and **$1.1 million** in fixed asset purchases[128](index=128&type=chunk) [Financing Activities](index=24&type=section&id=Financing%20Activities) This section reports cash flows from debt and equity transactions, including stock issuances and repayments - Cash provided by financing activities was minimal in both Q1 2019 (**$4,000**) and Q1 2018 (**$2,000**)[129](index=129&type=chunk) [Critical Accounting Policies and Use of Estimates](index=24&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section discusses accounting policies requiring significant judgment and estimation, which could materially impact financial results - The preparation of financial statements requires management to make estimates and judgments, which are based on historical data and experience, and actual results may differ[131](index=131&type=chunk) - There have been no significant changes to critical accounting policies and estimates from those described in the 2018 Annual Report, except for recent accounting pronouncements detailed in Note 2[133](index=133&type=chunk) [The JOBS Act](index=25&type=section&id=The%20JOBS%20Act) This section explains the company's status as an emerging growth company and its implications for disclosure requirements - The Company qualifies as an 'emerging growth company' under the JOBS Act, allowing for reduced disclosure requirements until December 31, 2021, or until certain revenue/debt/market capitalization thresholds are met[135](index=135&type=chunk) - The Company has irrevocably opted out of the extended transition period for complying with new or revised accounting standards, meaning it will comply at the same time as other public companies[135](index=135&type=chunk) [Off-Balance Sheet Arrangements](index=25&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements that could affect the company's financial condition - The Company did not have any material off-balance sheet arrangements during the periods presented, nor does it currently have any that are reasonably likely to have a material effect on its financial condition or results of operations[137](index=137&type=chunk) [PART II—OTHER INFORMATION](index=26&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section provides additional disclosures beyond financial statements, including legal proceedings, risk factors, and equity sales [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) This section states the company is not currently involved in legal proceedings expected to materially affect its business or financial condition - The Company is not currently involved in any legal proceedings that management believes would have a material effect on its business[147](index=147&type=chunk) - Litigation, regardless of outcome, can adversely impact the Company due to defense and settlement costs, diversion of management resources, and reputational harm[147](index=147&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant business, regulatory, IP, and common stock risks that could adversely affect the company's financial condition and stock price - Investing in the Company's common stock involves a high degree of risk, and potential investors should carefully consider all risks described[148](index=148&type=chunk) - The occurrence of any identified risk could harm the Company's business, financial condition, results of operations, prospects, and reputation, potentially causing the common stock price to decline[148](index=148&type=chunk) [Business and Strategy Risks](index=26&type=section&id=Business%20and%20Strategy%20Risks) This section outlines operational and strategic challenges that could impact the company's growth, profitability, and market position - The Company's results of operations may fluctuate significantly due to factors like sales timing, pricing changes, and billing/collection rates, making predictions difficult[150](index=150&type=chunk) - The Company has a history of losses and may not achieve or sustain profitability, with future losses expected due to investments in business growth[151](index=151&type=chunk) - Intense and increasing competition in the genetic testing market, coupled with potential price degradation, could hinder revenue growth and profitability[161](index=161&type=chunk)[164](index=164&type=chunk) - Failure to grow and diversify its customer base beyond hospitals and medical institutions, or to increase demand from existing customers, could limit growth potential[156](index=156&type=chunk) - International operations, including the FF Gene Biotech joint venture in China, expose the Company to additional business, regulatory, political, operational, financial, and economic risks[181](index=181&type=chunk)[182](index=182&type=chunk)[185](index=185&type=chunk) [Regulatory Risks](index=37&type=section&id=Regulatory%20Risks) This section details potential impacts from evolving healthcare regulations, licensing requirements, and data privacy laws - The FDA has historically exercised enforcement discretion for Laboratory Developed Tests (LDTs), but any future changes in FDA policy could subject the Company's tests to premarket clearance/approval, increasing costs and delaying sales[214](index=214&type=chunk)[215](index=215&type=chunk)[217](index=217&type=chunk) - Failure to comply with federal, state, local, and foreign laboratory licensing requirements (e.g., CLIA, CAP) could result in license suspension, penalties, and exclusion from healthcare programs[220](index=220&type=chunk)[222](index=222&type=chunk)[224](index=224&type=chunk) - The Company is subject to broad privacy and security laws (HIPAA, HITECH, GDPR), and non-compliance or data breaches could lead to significant penalties, reputational damage, and operational disruption[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - Healthcare policy changes, including the Affordable Care Act (ACA) and Protecting Access to Medicare Act (PAMA), could limit reimbursement rates and negatively impact revenue[234](index=234&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk) [Intellectual Property Risks](index=42&type=section&id=Intellectual%20Property%20Risks) This section addresses challenges related to protecting proprietary technology and potential infringement claims - The Company currently owns no patents and relies on trade secret protection, non-disclosure, and invention assignment agreements, which may not be effective in preventing competitors from using proprietary information[243](index=243&type=chunk)[245](index=245&type=chunk) - Litigation or third-party claims of intellectual property infringement or misappropriation could be costly, time-consuming, divert management resources, and potentially prevent the Company from selling its tests[246](index=246&type=chunk)[247](index=247&type=chunk) - Changes in patent law, particularly recent Supreme Court decisions (Prometheus, Myriad, Alice), could negatively impact the Company's ability to obtain or enforce patents related to genetic testing[248](index=248&type=chunk)[249](index=249&type=chunk)[251](index=251&type=chunk) [Common Stock Risks](index=46&type=section&id=Common%20Stock%20Risks) This section highlights factors that could affect the company's stock price, liquidity, and shareholder returns - An active, liquid trading market for the common stock may not develop or be sustained, exacerbated by the significant ownership stake of the founder, which could impair stockholders' ability to sell shares[263](index=263&type=chunk) - The price of the common stock may be volatile due to various factors, including operating results, competition, analyst reports, and general market conditions, potentially leading to loss of investment[265](index=265&type=chunk)[267](index=267&type=chunk) - Future issuances of common stock or rights to purchase common stock could result in additional dilution to existing stockholders and cause the stock price to fall[270](index=270&type=chunk) - The Company does not intend to pay dividends on its common stock, meaning returns will be limited to stock price appreciation, which may not occur[271](index=271&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the allocation of $36.0 million net IPO proceeds, used for a joint venture and operations, with remaining funds in short-term securities - The Company received approximately **$36.0 million** in net proceeds from its IPO completed on October 4, 2016[282](index=282&type=chunk) - Of the IPO proceeds, **$5.9 million** has been used: **$3.0 million** for contributions to the FF Gene Biotech joint venture and **$2.9 million** to fund the Company's operations[283](index=283&type=chunk) - The remaining net proceeds are invested in short-term, investment-grade, interest-bearing securities, and there has been no material change in the planned use of proceeds[283](index=283&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - The Exhibit Index lists certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1) and various XBRL documents (Exhibits 101.INS, SCH, CAL, DEF, LAB, PRE)[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk)

PART I [Business](index=5&type=section&id=Item%201.%20Business) Fulgent Genetics is a technology company specializing in comprehensive genetic testing, utilizing a proprietary platform to offer a broad and customizable test menu primarily to hospitals and medical institutions - Fulgent offers an extensive test menu, including approximately **18,000 single-gene tests** and over **900 multi-gene panels**, covering about **7,600 genetic conditions**[16](index=16&type=chunk) - The company's primary customers are hospitals and medical institutions, with approximately **78% of 2018 test billings** from these institutions paid during that year[43](index=43&type=chunk)[313](index=313&type=chunk) - Fulgent established a joint venture, FF Gene Biotech, in April 2017 to offer genetic testing services in the People's Republic of China (PRC), aiming to expand its presence in the Asian market[45](index=45&type=chunk) Key Operational Metrics (2017-2018) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Billable Tests Delivered | 22,298 | 16,578 | | Average Price per Test | ~$958 | ~$1,130 | | Average Cost per Test | ~$480 | ~$516 | [Our Technology Platform](index=6&type=section&id=Our%20Technology%20Platform) The company's integrated technology platform is built on four proprietary pillars: custom-designed gene probes, advanced database algorithms, adaptive learning software, and proprietary Laboratory Information Management Systems (LIMS) - Fulgent develops its own proprietary gene probes, which it believes allows for sequencing of DNA regions that commercial probes cannot, thereby improving test data detection rates[25](index=25&type=chunk) - The platform uses advanced data comparison and suppression algorithms to automate and simplify the curation process, highlighting pathogenic mutations and reducing irrelevant data noise[26](index=26&type=chunk) - Adaptive learning software automatically incorporates data from each completed test into the company's genetic reference library, enabling continuous improvement and operational efficiencies[27](index=27&type=chunk) [Competition](index=10&type=section&id=Competition) Fulgent faces intense competition from dozens of molecular genetic testing companies, characterized by rapid technological change and price pressure - Principal competitors include Ambry Genetics, Inc., Roche, GeneDx (a subsidiary of OPKO Health, Inc.), Invitae Corporation, and Myriad Genetics, Inc[58](index=58&type=chunk) - Competitive factors in the market include breadth of genetic content, test customization flexibility, price, quality and accuracy of results, turnaround time, and brand recognition[61](index=61&type=chunk) [Regulation](index=12&type=section&id=Regulation) The company operates in a highly regulated industry, subject to federal (CLIA, FDA, HIPAA), state, and foreign laws, with potential changes in FDA oversight posing a significant risk - The company's laboratory is **CLIA-certified** and accredited by the College of American Pathologists (CAP), ensuring quality standards for accuracy, reliability, and timeliness of test results[70](index=70&type=chunk)[73](index=73&type=chunk) - Fulgent's tests are considered Laboratory Developed Tests (LDTs), which have historically not been subject to FDA enforcement, but potential future FDA regulation could increase costs and delay market access[83](index=83&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) - The Protecting Access to Medicare Act of 2014 (PAMA) has changed how clinical laboratory services are paid under Medicare, basing rates on private payor data, which could impact future reimbursement levels[94](index=94&type=chunk)[95](index=95&type=chunk) - The company is subject to various privacy and security laws, including HIPAA in the U.S. and the GDPR in the European Union, which impose strict rules on handling protected health and personal information[100](index=100&type=chunk)[108](index=108&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks, including a history of losses, intense competition, reliance on limited suppliers, and regulatory uncertainties, particularly regarding potential FDA oversight of LDTs - The company has a history of losses and may not achieve or sustain profitability, despite achieving it in Q1 2017[144](index=144&type=chunk) - Fulgent relies on Illumina, Inc. as the sole supplier for its next-generation sequencers and associated reagents, creating a significant supplier dependency risk[184](index=184&type=chunk) - A primary regulatory risk is the potential for the FDA to change its enforcement discretion over Laboratory Developed Tests (LDTs), which could subject the company's tests to lengthy and expensive premarket clearance or approval processes[214](index=214&type=chunk) - The company relies on trade secrets rather than patents to protect its core technology, which may not provide effective protection against competitors independently developing similar technologies[242](index=242&type=chunk)[243](index=243&type=chunk) - A significant portion of the company's voting stock is controlled by its founder and CEO, Ming Hsieh, and other principal stockholders, allowing them to exert significant control over corporate matters[261](index=261&type=chunk) [Properties](index=46&type=section&id=Item%202.%20Properties) Fulgent's corporate headquarters and sole laboratory are located in a leased 12,000 square foot facility in Temple City, California, with additional leased office space for non-laboratory activities - The company's main facility, including its laboratory, is a **12,000 sq. ft. leased space** in Temple City, CA, with leases expiring in January 2021[274](index=274&type=chunk) [Legal Proceedings](index=46&type=section&id=Item%203.%20Legal%20Proceedings) The company reports that it is not currently a party to any legal proceedings that would have a material effect on its business - As of the report date, Fulgent is not involved in any material legal proceedings[275](index=275&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Fulgent's common stock began trading on the Nasdaq Global Market on September 29, 2016, and the company does not anticipate paying cash dividends, intending to retain earnings for business development - The company's common stock was listed on the Nasdaq Global Market on **September 29, 2016**[279](index=279&type=chunk) - Fulgent does not plan to pay dividends, retaining future earnings to finance business expansion[283](index=283&type=chunk) - From its IPO, the company has used **$3.0 million** for its FF Gene Biotech joint venture and **$2.9 million** for operations out of the **$36.0 million** net proceeds[286](index=286&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2018, Fulgent's revenue grew 14% to $21.4 million, driven by a 35% increase in billable tests, though the average price per test declined 15%, leading to a widened operating and net loss Consolidated Statement of Operations Data (2017 vs. 2018) | Metric | 2018 (in thousands) | 2017 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $21,351 | $18,730 | 14% | | Gross Profit | $10,654 | $10,179 | 5% | | Operating Loss | $(5,070) | $(3,482) | 46% | | Net Loss | $(5,607) | $(2,510) | 123% | Key Operating Metrics (2017 vs. 2018) | Metric | 2018 | 2017 | YoY Change | | :--- | :--- | :--- | :--- | | Billable tests delivered | 22,298 | 16,578 | 35% | | Average price per billable test | $958 | $1,130 | (15)% | | Cost per billable test | $480 | $516 | (7)% | - The increase in revenue was primarily due to a **35% increase in billable tests delivered**, while the average price per test decreased by **15%** due to changes in test mix and competitive pricing pressure[349](index=349&type=chunk)[351](index=351&type=chunk) - Operating expenses increased by **15% to $15.7 million** in 2018, driven by higher personnel costs from increased headcount and investments in R&D to expand the test menu[354](index=354&type=chunk)[357](index=357&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk) - The company adopted the new revenue recognition standard ASC 606 on January 1, 2018, which resulted in recognizing revenue from third-party payors on an accrual basis rather than a cash basis[323](index=323&type=chunk)[489](index=489&type=chunk) [Financial Statements and Supplementary Data](index=60&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for the fiscal years ended December 31, 2018 and 2017, including balance sheets, statements of operations, and cash flows Consolidated Balance Sheet Highlights (as of Dec 31) | Metric (in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Cash and cash equivalents | $6,736 | $6,490 | | Marketable securities | $30,684 | $34,877 | | Total Assets | $53,904 | $57,184 | | Total Liabilities | $2,752 | $3,006 | | Total Stockholders' Equity | $51,152 | $54,178 | Consolidated Cash Flow Highlights (Year Ended Dec 31) | Metric (in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Cash (used in) provided by operating activities | $(675) | $1,331 | | Net cash provided by (used in) investing activities | $950 | $(2,049) | | Net cash provided by (used in) financing activities | $15 | $(770) | [Controls and Procedures](index=60&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that both disclosure controls and procedures and internal control over financial reporting were effective as of **December 31, 2018**[398](index=398&type=chunk)[399](index=399&type=chunk) [Other Information](index=61&type=section&id=Item%209B.%20Other%20Information) The company revised its previously issued earnings release for Q4 and full-year 2018 due to an increased deferred tax valuation allowance, resulting in a higher reported net loss - The company revised its previously announced Q4 and full-year 2018 financial results due to an increased deferred tax valuation allowance[404](index=404&type=chunk) - The revision increased the full-year 2018 net loss from **$4.5 million ($0.25/share)** to **$5.6 million ($0.31/share)**[404](index=404&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=62&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for its 2019 annual meeting of stockholders - Information is incorporated by reference from the **2019 proxy statement**[407](index=407&type=chunk) [Executive Compensation](index=62&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2019 annual meeting of stockholders - Information is incorporated by reference from the **2019 proxy statement**[408](index=408&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=62&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the company's definitive proxy statement for its 2019 annual meeting of stockholders - Information is incorporated by reference from the **2019 proxy statement**[409](index=409&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=62&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2019 annual meeting of stockholders - Information is incorporated by reference from the **2019 proxy statement**[410](index=410&type=chunk) [Principal Accounting Fees and Services](index=62&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for its 2019 annual meeting of stockholders - Information is incorporated by reference from the **2019 proxy statement**[411](index=411&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=63&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements filed as part of the report and includes an index of all exhibits filed with the 10-K, such as corporate governance documents and material contracts - This section provides an index of all exhibits filed with the Form 10-K, including material contracts and certifications[416](index=416&type=chunk)[419](index=419&type=chunk)

Fulgent Genetics, Inc. (NASDAQ:FLGT) Q4 2018 Earnings Conference Call February 28, 2019 4:30 PM ET Company Participants Nicole Borsje – Head of Investor Relations Ming Hsieh – Chief Executive Officer Paul Kim – Chief Financial Officer Conference Call Participants Bill Quirk – Piper Jaffray Erin Wright – Credit Suisse Operator Good day, ladies and gentlemen, and welcome to the Fulgent Genetics Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded ...