Fulgent Genetics, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; selected Q4 figures are included below. Fulgent provides COVID-19, genetic and molecular diagnostic testing services.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $992.6 million | $421.7 million |
| Gross profit / gross margin | $777.1 million / 78.3% | $331.9 million / 78.7% |
| Operating income / operating margin | $676.0 million / 68.1% | $290.2 million / 68.8% |
| Net income attributable to Fulgent | $507.4 million | $214.3 million |
| Diluted earnings per share | $16.38 | $8.91 |
| Billable tests delivered | 9.96 million | 4.41 million |
| Average price / cost per billable test | $100 / $22 | $96 / $20 |
Revenue rose 135%, primarily from increased COVID-19 testing volume and a higher average price per test. Gross margin declined 0.4 percentage points as cost per test increased. The filing does not provide a clear annual revenue split between COVID-19 and non-COVID testing. One customer, the County of Los Angeles, accounted for 26% of 2021 revenue. HRSA COVID-19 Uninsured Program claims contributed $310.4 million of insurance revenue.
Q4 2021: Revenue was $251.7 million and net income attributable to Fulgent was $104.3 million. Q4 revenue was below Q1’s $359.4 million and above Q4 2020’s $295.0 million.
Cash flow and balance sheet: Operating cash flow was $538.6 million, compared with $140.6 million in 2020; investing cash flow was negative $546.5 million and financing cash flow was positive $85.4 million. At year-end, cash and cash equivalents were $164.9 million and marketable securities totaled $770.7 million, together $935.5 million. Current assets were $612.0 million versus current liabilities of $105.3 million. Debt included a $15.1 million margin loan and $6.1 million of notes payable, the latter due December 2022. Securities of $499.4 million collateralized the margin borrowing, which is callable by the custodian. The company reported no material off-balance-sheet arrangements.
Material changes and significant items
- Billable test volume increased 126%; average price per test rose 4%, while cost per test rose 10%.
- Operating expenses increased 142% to $101.1 million, including higher research and development, sales and marketing, and general and administrative costs. General and administrative expense included an $8.9 million provision for credit losses.
- Acquired control of China joint venture FF Gene Biotech, bringing the company’s indirect ownership to 72%; the transaction generated a $3.7 million remeasurement gain. FF Gene Biotech recorded $6.6 million revenue and a $3.9 million operating loss after acquisition.
- Acquired cancer-testing laboratory Cytometry Specialists, Inc. (CSI) for $43.4 million cash plus up to $10.0 million contingent consideration. CSI contributed $17.4 million revenue and $1.1 million operating income after acquisition. The purchase accounting includes $27.5 million goodwill and $30.5 million identifiable intangible assets.
- Invested $20.0 million in Helio Health redeemable preferred stock, valued at $22.0 million at year-end; the investment is not redeemable until July 2027.
- Sold approximately 1.1 million shares through an equity distribution agreement for $72.0 million net proceeds, increasing shares outstanding.
Outlook, risks and contingencies
Management stated existing cash, cash equivalents, short-term marketable securities and expected operating cash flow should meet anticipated cash requirements for at least 12 months. No quantified revenue or earnings guidance is provided. Management expects investment in infrastructure, research and development, sales and marketing, and administrative capacity to continue. It cautions that COVID-19 testing demand and related profitability may eventually decrease; pandemic developments, variants, competition and changing test prices make future results uncertain. The company says the pandemic had not negatively affected liquidity or caused material asset impairments as of year-end.
- Demand and concentration: Results can fluctuate significantly with COVID-19 testing demand, test and customer mix, and orders from major customers. The Los Angeles County concentration is material, and customer orders generally are not supported by long-term volume commitments.
- Regulatory and reimbursement: Changes to FDA oversight of laboratory-developed tests, the terms or duration of COVID-19 emergency authorizations, laboratory licensing, privacy requirements, and reimbursement rules could raise costs or disrupt testing. Genetic-test reimbursement remains uncertain.
- Operations and competition: Illumina is the sole supplier of the sequencers and associated reagents used for genetic tests and their maintenance. Supply interruptions, price pressure, capacity demands, and difficulty retaining skilled staff are risks.
- Legal contingency: The company received a U.S. Department of Justice civil investigative demand under the False Claims Act concerning allegations of medically unnecessary testing, improper billing, and remuneration related to Anti-Kickback and Stark laws. Fulgent said it was cooperating and did not then expect a material adverse impact, but could not predict the outcome or timing.
- Acquisition and investment risks: CSI integration and acquisition valuations involve estimates; the auditor identified CSI customer-relationship valuation as a critical audit matter. FF Gene Biotech and Helio Health also carry execution and valuation risks.
- Controls and audit: Management and the auditor reported effective internal control over financial reporting, but certain CSI controls were excluded from the 2021 assessment while integration proceeds.
Investor verification priorities
- Track the proportion of revenue and profit dependent on COVID-19 testing, which the filing does not quantify separately, and monitor subsequent demand and pricing.
- Monitor Los Angeles County’s share of revenue, customer renewal or order trends, and collection performance; the allowance for credit losses increased to $11.2 million from $1.9 million.
- Review cash conversion, accounts receivable collections, and securities liquidity, including the $499.4 million pledged against a callable margin loan.
- Verify CSI integration, acquisition performance and contingent-consideration settlement, along with FF Gene Biotech’s operating progress and Helio Health investment valuation.
- Follow the DOJ investigation, changes to LDT and COVID-19 test regulation, reimbursement policy, and any updates to internal controls as CSI is integrated.