Quarterly Report (10-q)

Date : 11/08/2019 @ 11:07AM
Source : Edgar (US Regulatory)
Stock : Fulgent Genetics Inc (FLGT)
Quote : 10.68  -0.43 (-3.87%) @ 4:59AM
Fulgent Genetics share price Chart

Quarterly Report (10-q)

 

 

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 September 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 jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

4978 Santa Anita Avenue, Suite 205

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 November 1, 2019, there were 18,710,357 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 Operations

2

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

Condensed Consolidated Statements of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

6

Notes to the Condensed Consolidated Financial Statements

7

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

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

Item 4. Controls and Procedures

24

PART II—OTHER INFORMATION

26

Item 1. Legal Proceedings

26

Item 1A. Risk Factors

26

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

50

Item 6. Exhibits

50

Exhibit Index

51

Signatures

52

 

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FULGENT GENETICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except par value data)

(unaudited)

 

 

September 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

20,522

 

 

$

6,736

 

Marketable securities

 

11,596

 

 

 

24,298

 

Trade accounts receivable, net of allowance for doubtful accounts of $611 and $590, as of

  September 30, 2019 and December 31, 2018, respectively

 

5,292

 

 

 

5,948

 

Other current assets

 

1,795

 

 

 

2,561

 

Total current assets

 

39,205

 

 

 

39,543

 

Marketable securities, long-term

 

11,487

 

 

 

6,386

 

Equity method investments

 

909

 

 

 

1,512

 

Fixed assets, net

 

6,396

 

 

 

6,446

 

Operating lease right-of-use asset

 

2,739

 

 

 

 

Other long-term assets

 

409

 

 

 

17

 

Total assets

$

61,145

 

 

$

53,904

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

2,150

 

 

$

1,313

 

Accrued liabilities

 

1,634

 

 

 

1,425

 

Income tax payable

 

60

 

 

 

 

Operating lease liabilities, short-term

 

409

 

 

 

 

Total current liabilities

 

4,253

 

 

 

2,738

 

Operating lease liabilities, long-term

 

2,366

 

 

 

 

Other long-term liabilities

 

 

 

 

14

 

Total liabilities

 

6,619

 

 

 

2,752

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, $0.0001 par value per share, 50,000 shares authorized, 18,673 and 18,172

   shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

2

 

 

 

2

 

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

   outstanding at September 30, 2019 and December 31, 2018

 

 

 

 

 

Additional paid-in capital

 

117,478

 

 

 

114,203

 

Accumulated other comprehensive income (loss)

 

179

 

 

 

(35

)

Accumulated deficit

 

(63,133

)

 

 

(63,018

)

Total stockholders’ equity

 

54,526

 

 

 

51,152

 

Total liabilities and stockholders’ equity

$

61,145

 

 

$

53,904

 

 

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

 

1


 

FULGENT GENETICS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

$

10,347

 

 

$

5,625

 

 

$

24,141

 

 

$

15,678

 

Cost of revenue

 

3,885

 

 

 

2,612

 

 

 

10,473

 

 

 

7,928

 

Gross profit

 

6,462

 

 

 

3,013

 

 

 

13,668

 

 

 

7,750

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,744

 

 

 

1,438

 

 

 

4,742

 

 

 

4,108

 

Selling and marketing

 

1,687

 

 

 

1,115

 

 

 

4,263

 

 

 

3,524

 

General and administrative

 

1,522

 

 

 

1,306

 

 

 

4,682

 

 

 

4,159

 

Total operating expenses

 

4,953

 

 

 

3,859

 

 

 

13,687

 

 

 

11,791

 

Operating income (loss)

 

1,509

 

 

 

(846

)

 

 

(19

)

 

 

(4,041

)

Interest and other income, net

 

189

 

 

 

143

 

 

 

588

 

 

 

336

 

Income (loss) before income taxes and equity loss in investee

 

1,698

 

 

 

(703

)

 

 

569

 

 

 

(3,705

)

Provision for (benefit from) income taxes

 

61

 

 

 

(318

)

 

 

81

 

 

 

(852

)

Income (loss) before equity loss in investee

 

1,637

 

 

 

(385

)

 

 

488

 

 

 

(2,853

)

Equity loss in investee

 

(175

)

 

 

(210

)

 

 

(603

)

 

 

(701

)

Net income (loss)

$

1,462

 

 

$

(595

)

 

$

(115

)

 

$

(3,554

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.08

 

 

$

(0.03

)

 

$

(0.01

)

 

$

(0.20

)

Diluted

$

0.08

 

 

$

(0.03

)

 

$

(0.01

)

 

$

(0.20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

18,501

 

 

 

18,012

 

 

 

18,358

 

 

 

17,931

 

Diluted

 

19,456

 

 

 

18,012

 

 

 

18,358

 

 

 

17,931

 

 

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

 

 

2


 

FULGENT GENETICS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income (loss)

$

1,462

 

 

$

(595

)

 

$

(115

)

 

$

(3,554

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

(17

)

 

 

(23

)

 

 

(16

)

 

 

(44

)

Net unrealized gain (loss) on marketable securities, net of tax

 

(7

)

 

 

48

 

 

 

230

 

 

 

31

 

Comprehensive income (loss)

$

1,438

 

 

$

(570

)

 

$

99

 

 

$

(3,567

)

 

 

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)

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In Capital

 

 

Accumulated

Other Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Total

Equity

 

Balance at December 31, 2018

 

 

18,172

 

 

$

2

 

 

$

114,203

 

 

$

(35

)

 

$

(63,018

)

 

$

51,152

 

Equity-based compensation

 

 

 

 

 

 

 

 

583

 

 

 

 

 

 

 

 

 

583

 

Exercise of common stock options

 

 

9

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Restricted stock awards

 

 

105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain, net

 

 

 

 

 

 

 

 

 

 

 

130

 

 

 

 

 

 

130

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,908

)

 

 

(1,908

)

Balance at March 31, 2019

 

 

18,286

 

 

 

2

 

 

 

114,790

 

 

 

95

 

 

 

(64,926

)

 

 

49,961

 

Equity-based compensation

 

 

 

 

 

 

 

 

737

 

 

 

 

 

 

 

 

 

737

 

Exercise of common stock options

 

 

15

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Restricted stock awards

 

 

92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain, net

 

 

 

 

 

 

 

 

 

 

 

108

 

 

 

 

 

 

108

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

331

 

 

 

331

 

Balance at June 30, 2019

 

 

18,393

 

 

 

2

 

 

 

115,532

 

 

 

203

 

 

 

(64,595

)

 

 

51,142

 

Equity-based compensation

 

 

 

 

 

 

 

 

951

 

 

 

 

 

 

 

 

 

951

 

Exercise of common stock options

 

 

43

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Restricted stock awards

 

 

133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock at an average

   of $9.37 per share, net

 

 

104

 

 

 

 

 

 

979

 

 

 

 

 

 

 

 

 

979

 

Other comprehensive gain, net

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(24

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,462

 

 

 

1,462

 

Balance at September 30, 2019

 

 

18,673

 

 

$

2

 

 

$

117,478

 

 

$

179

 

 

$

(63,133

)

 

$

54,526

 

 

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

 

4


 

FULGENT GENETICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In Capital

 

 

Accumulated

Other Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Total

Equity

 

Balance at December 31, 2017

 

 

17,847

 

 

$

2

 

 

$

111,884

 

 

$

(44

)

 

$

(57,664

)

 

$

54,178

 

Equity-based compensation

 

 

 

 

 

 

 

 

545

 

 

 

 

 

 

 

 

 

545

 

Exercise of common stock options

 

 

5

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Restricted stock awards

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect of accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

327

 

 

 

327

 

Cumulative tax effect of accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(74

)

 

 

(74

)

Other comprehensive gain, net

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,910

)

 

 

(1,910

)

Balance at March 31, 2018

 

 

17,876

 

 

 

2

 

 

 

112,431

 

 

 

(87

)

 

 

(59,321

)

 

 

53,025

 

Equity-based compensation

 

 

 

 

 

 

 

 

573

 

 

 

 

 

 

 

 

 

573

 

Exercise of common stock options

 

 

18

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Restricted stock awards

 

 

69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain, net

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,049

)

 

 

(1,049

)

Balance at June 30, 2018

 

 

17,963

 

 

 

2

 

 

 

113,011

 

 

 

(82

)

 

 

(60,370

)

 

 

52,561

 

Equity-based compensation

 

 

 

 

 

 

 

 

588

 

 

 

 

 

 

 

 

 

588

 

Exercise of common stock options

 

 

6

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Restricted stock awards

 

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain, net

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

25

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(595

)

 

 

(595

)

Balance at September 30, 2018

 

 

18,057

 

 

$

2

 

 

$

113,600

 

 

$

(57

)

 

$

(60,965

)

 

$

52,580

 

 

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

5


 

FULGENT GENETICS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(115

)

 

$

(3,554

)

Adjustments to reconcile net loss to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

2,271

 

 

 

1,706

 

Depreciation

 

 

1,549

 

 

 

1,625

 

Noncash lease expense

 

 

306

 

 

 

 

Loss on disposal of fixed asset

 

 

11

 

 

 

88

 

Amortization of premium of marketable securities

 

 

52

 

 

 

239

 

Provision for bad debt

 

 

37

 

 

 

230

 

Deferred taxes

 

 

(21

)

 

 

(887

)

Equity loss in investee

 

 

603

 

 

 

701

 

Other

 

 

41

 

 

 

18

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

588

 

 

 

(1,993

)

Other current and long-term assets

 

 

450

 

 

 

215

 

Accounts payable

 

 

(91

)

 

 

(175

)

Accrued liabilities

 

 

202

 

 

 

334

 

Income tax payable

 

 

60

 

 

 

 

Operating lease liabilities

 

 

(310

)

 

 

 

Net cash provided by (used in) operations

 

 

5,633

 

 

 

(1,453

)

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Purchases of fixed assets

 

 

(721

)

 

 

(2,199

)

Purchase of marketable securities

 

 

(11,846

)

 

 

(13,165

)

Maturities of marketable securities

 

 

19,600

 

 

 

19,360

 

Purchase of equipment contributed to Equity Method Investee

 

 

 

 

 

(510

)

Net cash provided by investing activities

 

 

7,033

 

 

 

3,486

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

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

 

 

1,110

 

 

 

 

Proceeds from exercise of stock options

 

 

26

 

 

 

10

 

Net cash provided by financing activities

 

 

1,136

 

 

 

10

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(16

)

 

 

(44

)

Net increase in cash

 

 

13,786

 

 

 

1,999

 

Cash balance at beginning of period

 

 

6,736

 

 

 

6,490

 

Cash balance at end of period

 

$

20,522

 

 

$

8,489

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

20

 

 

$

1

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of fixed assets in accounts payable

 

$

880

 

 

$

73

 

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

 

$

110

 

 

$

 

Public offerings costs included in accounts payable

 

$

131

 

 

$

 

 

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

6


 

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 (“U.S. GAAP”). These financial statements include the assets, liabilities, revenues and expenses of all wholly-owned 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 (1) the power to direct the economically significant activities of the entity and (2) 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 its investments in entities that it does not control, but in which it has the ability to exercise significant influence over operating and financial policies. All significant intercompany accounts and transactions are eliminated from the accompanying condensed consolidated financial statements.

Nature of the Business

Fulgent Genetics, Inc., together with its subsidiaries (collectively referred to as the “Company,” unless otherwise noted or the context otherwise requires), is a growing technology company offering comprehensive genetic testing and providing physicians with clinically actionable diagnostic information they can use to improve the quality of patient care. The Company has developed a proprietary technology platform that allows it to offer a broad and flexible test menu and continually expand and improve its proprietary genetic reference library, while maintaining accessible pricing, high accuracy and competitive turnaround times. Combining next generation sequencing, or NGS, with its technology platform, the Company performs full-gene sequencing with deletion/duplication analysis in single-gene tests; pre-established, multi-gene, disease-specific panels; and customized panels that can be tailored to meet specific customer needs. The Company believes its test menu offers more genes for testing than its competitors in today’s market, which enables it to provide expansive options for test customization and clinically actionable results. A cornerstone of the Company’s business is its ability to provide expansive options and flexibility for all clients’ unique genetic testing needs.

Unaudited Interim Financial Information

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2018, which are included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2019 (the “2018 Annual Report”), and, in the opinion of management, include all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the Company’s financial position and results of operations. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or any other period. The accompanying condensed consolidated balance sheet as of December 31, 2018 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the 2018 Annual Report, including the notes thereto.

 

 

 

Note 2. Summary of Significant Accounting Policies

See the summary of the Company’s significant accounting policies set forth in the notes to its consolidated financial statements included in the 2018 Annual Report.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. These estimates, judgments and assumptions are based on historical data and experience available at the date of the accompanying condensed consolidated financial statements, as well as various other factors management believes to be reasonable under the circumstances. Actual results could differ from these estimates.

On an on-going basis, management evaluates its estimates, primarily those related to: (i) revenue recognition criteria, (ii) accounts receivable and allowances for doubtful accounts, (iii) the useful lives of fixed assets, (iv) estimates of tax liabilities and (v) equity method investments.

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Foreign Currency Translation and Foreign Currency Transactions

The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in other comprehensive income (loss) in the accompanying condensed consolidated statements of stockholders’ equity. Gains and losses from these translations were not significant in the three and nine months ended September 30, 2019 and 2018. The Company and its subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and nonmonetary assets and liabilities at historical rates. Losses from these remeasurements were not significant in the three and nine months ended September 30, 2019 and 2018.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included as operating lease right-of-use (“ROU”) assets, operating lease liabilities, short-term, and operating lease liabilities, long-term, on the Company’s condensed consolidated balance sheets.

ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating ROU lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, including options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments since its leases do not provide an implicit rate. The ROU lease asset includes any base rent payments made and excludes lease incentives and variable operating expenses. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Concentration of Customers

In certain periods, a small number of customers has accounted for a significant portion of the Company’s revenue. In the three and nine months ended September 30, 2019, after aggregating customers that are under common control or are affiliates, one customer contributed 40% and 33%, respectively, of the Company’s revenue. In the three and nine months ended September 30, 2018, after aggregating customers that are under common control or are affiliates, one customer contributed 13% of the Company’s revenue.

Revenue from Contracts with Customers

Disaggregation of Revenue

The Company classifies its customers into three payor types, Clinical Institutional, Patients who pay directly or Clinical Insurance, as the Company believes this best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. The following table summarizes revenue from contracts with customers by payor type for the three and nine months of 2019 and 2018.

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(in thousands)

 

Genetic Testing Services by payor

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Institutional

$

10,031

 

 

$

5,334

 

 

$

23,310

 

 

$

14,594

 

Patient

 

128

 

 

 

148

 

 

 

373

 

 

 

407

 

Insurance

 

188

 

 

 

143

 

 

 

458

 

 

 

677

 

Total Revenue

$

10,347

 

 

$

5,625

 

 

$

24,141

 

 

$

15,678

 

 

 

Contract Balances

Receivables from contracts with customers - As of September 30, 2019 and December 31, 2018, receivables from contracts with customers were approximately $5.3 million and $5.9 million, respectively, and are included within Trade accounts receivable on the Condensed Consolidated Balance Sheets.

Contracts assets and liabilities - As of September 30, 2019 and December 31, 2018, contract assets from contracts with customers were $150,000, associated with contract execution and included in other current assets in the accompanying Condensed Consolidated Balance Sheets. Contract liabilities are recorded when the Company receives payment prior to completing its obligation

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to transfer goods or services to a customer. The Company had $369,000 and $166,000 of contract liability, which is part of Accrued liabilities in the accompanying Condensed Consolidated Balance Sheets, as of September 30, 2019 and December 31, 2018, respectively. Revenues of $48,000 and $26,000 for the three months and $37,000 and $16,000 for the nine months were recognized for the periods ended September 30, 2019 and 2018, respectively, related to contract liabilities at the beginning of the respective periods.

Transaction Price Allocated to Future Performance Obligations

The Company does not have material future obligations associated with genetic testing services that extend beyond one year.

Recent Ac