Fulgent Genetics(US:FLGT)2023-02-27 16:00Expansion and Acquisitions - The company opened a new CLIA-certified oncology laboratory in El Monte, California, expanding capabilities in somatic molecular diagnostics and cancer testing[476] - The acquisition of Inform Diagnostics extended the company's in-network relationships with managed care organizations to over 300 million covered lives[477] - The company's geographic footprint expanded with the addition of CLIA, CAP, and NY State certified laboratories in California, New York, Arizona, Massachusetts, and Texas[477] - The company completed the acquisition of Inform Diagnostics for approximately $170 million, expanding its genomic testing footprint into multiple pathology areas[536] - The company acquired businesses for $172.7 million in 2022, significantly higher than $61.9 million in 2021[494] - The company completed the acquisition of Inform Diagnostics and Fulgent Pharma in 2022 and is currently integrating them into operations[616] Financial Performance and Revenue - The company's revenue is impacted by the mix of tests delivered and customer concentration, with a small number of customers accounting for a significant portion of revenue in prior periods[481] - Revenue for the year ended December 31, 2022, was $659.4 million, a decrease from $1.14 billion in 2021[542] - Revenue for Q4 2022 was $67.704 million, a decrease from $105.655 million in Q3 2022 and $125.341 million in Q2 2022[563] - Gross profit for Q4 2022 was $12.987 million, significantly lower than $46.095 million in Q3 2022 and $65.276 million in Q2 2022[563] - Operating loss for Q4 2022 was $36.552 million, compared to an operating income of $201.933 million in Q1 2022[563] - Revenue from the Inform Diagnostics acquisition since the acquisition date was $83.6 million, with an operating loss of $17.0 million[553] - Revenue is primarily generated from testing services, with payments received from insurance, institutional customers, and direct patient payments[574] Profitability and Net Income - The company reported a net income of $507.36 million in 2021, contributing to a total equity of $1.27 billion at the end of 2022[490] - Net income from consolidated operations in 2022 was $141.9 million, a significant decrease from $506.2 million in 2021 and $214.3 million in 2020[494] - Net income attributable to Fulgent for 2022 was $140.3 million, compared to $493.3 million in 2021[542] Cash Flow and Investments - Net cash provided by operating activities in 2022 was $253.5 million, compared to $538.6 million in 2021 and $140.6 million in 2020[494] - Cash and cash equivalents at the end of 2022 were $79.5 million, down from $164.9 million at the end of 2021 and $87.4 million at the end of 2020[494] - The company invested $417.9 million in marketable securities in 2022, compared to $710.5 million in 2021 and $324.4 million in 2020[494] - Cash used in investing activities in 2022 was $261.3 million, primarily due to $418.0 million in purchases of marketable securities and $172.7 million related to business acquisitions[568] - Cash used in financing activities in 2022 was $77.1 million, mainly due to $74.3 million used in the repurchase of common stock[569] - Cash provided by operating activities in 2021 was $538.6 million, with adjustments including $15.9 million in equity-based compensation expenses and $11.0 million in depreciation and amortization[567] - Cash used in investing activities in 2021 was $546.5 million, including $710.5 million in purchases of marketable securities and $61.9 million related to business acquisitions[580] - Cash provided by financing activities in 2021 was $85.4 million, primarily from $89.5 million proceeds from an equity distribution agreement[581] Equity and Compensation - The company's equity-based compensation and stock issuances contributed significantly to its equity growth, with $32.64 million in equity-based compensation in 2021[490] - Equity-based compensation increased to $32.6 million in 2022 from $15.9 million in 2021 and $8.2 million in 2020[494] - The company's RSU (Restricted Stock Units) balance increased from 1,619 thousand shares in 2021 to 2,631 thousand shares in 2022, with a weighted-average grant date fair value of $47.76[520] - The company's option awards balance decreased from 216 thousand shares in 2021 to 212 thousand shares in 2022, with a weighted-average exercise price of $4.21[518] Tax and Financial Reporting - The company's effective tax rate decreased from 25.76% in 2021 to 22.70% in 2022, influenced by state taxes, uncertain tax positions, and stock-based compensation[525] - The company's deferred tax assets increased significantly from $21,920 thousand in 2021 to $56,587 thousand in 2022, primarily due to provisions for credit losses and net operating losses[526] - The company has $9.7 million of gross unrecognized tax benefits as of December 31, 2022, with $2.3 million potentially affecting the effective tax rate if recognized[529] - Management concluded that internal control over financial reporting was effective as of December 31, 2022[617] - The company's internal control over financial reporting was audited by Deloitte & Touche LLP, which expressed an unqualified opinion[618] Goodwill and Intangible Assets - The company's goodwill is subject to annual impairment tests, with impairment recognized if the fair value of the reporting unit is less than its carrying value[514] - The company's total goodwill as of December 31, 2022, was $143.0 million, up from $50.9 million in 2021[547] - Total intangible assets, net, increased to $150.643 million in 2022 from $35.914 million in 2021, driven by goodwill and customer relationships[560] - The company's intangible assets are amortized over periods ranging from five to fourteen years, with in-process research and development costs considered indefinite-lived until completion or abandonment[512] Stock Repurchase and Financing - The company repurchased $74.3 million of common stock in 2022, a new activity not present in previous years[494] - The company repurchased 1.8 million shares of its common stock at an aggregate cost of $74.3 million under the stock repurchase program in 2022, with $175.7 million remaining available for future repurchases[559][570] - A $250.0 million stock repurchase program was authorized in March 2022, with no expiration date[582] Risk Management and Liabilities - The company's allowance for credit losses increased from $11,217 thousand at the beginning of the year to $41,205 thousand at the end of the year, with a current period provision of $32,596 thousand[508] - The company holds a redeemable preferred stock investment valued at $12.4 million as of December 31, 2022, with unrealized losses of $9.6 million reported in other comprehensive income for the year[509] - A hypothetical 100 basis point increase in interest rates would result in a $7.3 million decline in the fair market value of the investment portfolio[591] - An adverse 10% foreign currency exchange rate change would decrease income before taxes by approximately $844,000 as of December 31, 2022[592] - As of December 31, 2022, the company had an outstanding balance of $15.0 million under its margin account and $5.2 million in notes payable due in March 2023[583] Therapeutic Development and Precision Medicine - The company's therapeutic development business focuses on improving the therapeutic window and pharmacokinetic profile of cancer drugs using a novel nanoencapsulation and targeted therapy platform[475] - The company's therapeutic development business is focused on developing drug candidates for treating a broad range of cancers using a novel nanoencapsulation and targeted therapy platform[498] - The company aims to transform from a genomic diagnostic business into a fully integrated precision medicine company[498] - Fulgent Pharma's acquisition included $64.6 million in IPR&D, with a lead drug candidate, FID-007, showing promise in preliminary human clinical trials[543] Operational Costs and Expenses - The company incurred $1.2 million in costs related to COVID-19 antigen rapid test kits and licensing services in 2022[535] - The company's fixed assets are recorded at cost, net of accumulated depreciation, with major replacements and improvements capitalized and general repairs expensed as incurred[511] - The company has non-cancelable operating leases, finance leases, and purchase obligations for medical lab equipment, reagents, and other supplies as of December 31, 2022[572] Marketable Securities and Investments - The company uses the Black-Scholes option-pricing model to measure the fair value of option awards, requiring significant judgment in assumptions such as expected term[521] - The company's cash and cash equivalents are held in accounts at financial institutions, with amounts potentially exceeding federally insured limits, but management believes the credit risk is not significant[565] - Cash and cash equivalents as of December 31, 2022 include $5.0 million restricted cash related to a share transfer agreement[502]