FULGENT GENETICS, INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements
and related notes included in this report and contains forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act. We have omitted discussion of 2020 results
where it would be redundant to the discussion previously included in Item 7 of
our 2021 Annual Report on Form 10-K. Forward-looking statements are statements
other than historical facts and relate to future events or circumstances or our
future performance, and they are based on our current assumptions, expectations
and beliefs concerning future developments and their potential effect on our
business. The forward-looking statements in this discussion and analysis include
statements about, among other things, our future financial and operating
performance, our future cash flows and liquidity and our growth strategies, as
well as anticipated trends in our business and industry. These forward-looking
statements are subject to a number of risks and uncertainties, including, among
others, those described under "Item 1A. Risk Factors" in Part I of this report.
Moreover, we operate in a competitive and rapidly evolving industry and new
risks emerge from time to time. It is not possible for us to predict all of the
risks we may face, nor can we assess the impact of all factors on our business
or the extent to which any factor or combination of factors could cause actual
results to differ from our expectations. In light of these risks and
uncertainties, the forward-looking events and circumstances described in this
discussion and analysis may not occur, and actual results could differ
materially and adversely from those described in or implied by any
forward-looking statements we make. Although we have based our forward-looking
statements on assumptions and expectations we believe are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements or
other future events. As a result, forward-looking statements should not be
relied on or viewed as predictions of future events, and this discussion and
analysis should be read with the understanding that actual future results,
levels of activity, performance and achievements may be materially different
than our current expectations. The forward-looking statements in this discussion
and analysis speak only as of the date of this report, and except as required by
law, we undertake no obligation to update publicly any forward-looking
statements for any reason after the date of this report to conform these
statements to actual results or to changes in our expectations.

                                    Overview

We are a technology-based company with a well-established clinical diagnostic
business and a therapeutic development business. Our clinical diagnostic
business offers molecular diagnostic testing services, comprehensive genetic
testing, and high-quality anatomic pathology laboratory services designed to
provide physicians and patients with clinically actionable diagnostic
information to improve the quality of patient care. Our therapeutic development
business is focused on developing drug candidates for treating a broad range of
cancers using a novel nanoencapsulation and targeted therapy platform designed
to improve the therapeutic window and pharmacokinetic profile, or PK profile, of
new and existing cancer drugs. We aim to transform from a genomic diagnostic
business into a fully integrated precision medicine company.

We recorded revenue and income from operations of $619.0 million and $143.4
million, respectively, in 2022, compared to revenue and income from operations
of $992.6 million and $507.4 million, respectively, in 2021.

                               2022 Developments

Opening of New State-of-the-Art Oncology Laboratory in El Monte, California

In May 2022, we opened a new state-of-the-art oncology laboratory in El Monte,
California, near our global headquarters in Temple City. This new CLIA-certified
lab enables us to expand our capabilities in somatic molecular diagnostics and
cancer testing and more efficiently serve oncology clients on the West Coast of
the United States.

Acquisition of Inform Diagnostics

In April 2022, we completed the acquisition of Inform Diagnostics, a leading
national independent pathology laboratory based in Irving, Texas, and a
portfolio company of Avista Capital Partners. Inform Diagnostics, formerly known
as Pathology Partners, was founded in 1996 and has since become one of the
largest national pathology laboratories in the United States, with offerings
across gastrointestinal pathology, dermatopathology, urologic pathology, and
hematopathology, among others. Inform Diagnostics currently provides services to
approximately 1,300 clients who represent over 2,700 physicians. Inform
Diagnostics is committed to providing physicians and the patients they serve
with efficient, dependable, and high-quality service to facilitate faster
treatment for patients and more efficient workflows for clinicians. The
acquisition extends our capabilities into the pathology testing market, with the
goal of continuing to innovate healthcare by developing new NGS based tests,
among other technologies, to further serve the combined companies' large,
nationwide customer base. With the addition of Inform Diagnostics' extensive
testing capabilities, nationwide

                                       49
--------------------------------------------------------------------------------
salesforce, and significant managed care contracts, we believe we are better
positioned to become a one-stop shop for diagnostic services throughout the
healthcare continuum and across the United States. We see valuable cross-selling
opportunities with Inform Diagnostics' national GI and GU specialist client
base, including our newly launched liquid biopsy test for Hepatocellular
carcinoma, HelioLiver, as well as an upcoming molecular test for urology, which
is pending launch. In addition, we expect to offer high-value NGS-based oncology
services to Inform Diagnostics' hematology clients. We believe Inform
Diagnostics' client relationships will enable us to access more patients along
key touchpoints to provide a comprehensive suite of diagnostic products and
services leading to improved healthcare. The acquisition extends our in-network
relationships with managed care organizations to over 300 million covered lives
and expands our geographic footprint with the addition of CLIA, CAP, and NY
State certified laboratories in California, New York, Arizona, Massachusetts,
and Texas.

Acquisition of Fulgent Pharma

In November 2022, we completed the acquisition of Fulgent Pharma, a
clinical-stage, therapeutics development company focused on the development of
innovative cancer treatments. Through this acquisition and assuming successful
development and the requisite approvals, we plan to offer a vertically
integrated solution to combat cancer with the potential to create value for both
this therapeutic and diagnostic our businesses. Fulgent Pharma and Fulgent
Genetics were previously both owned by Fulgent Therapeutics until 2016, when the
businesses were separated ahead of the Initial Public Offering of Fulgent
Genetics. The companies have operated as separate entities since 2016, enabling
each business to focus on and achieve core objectives across genetic testing and
therapeutic drug development. Fulgent Pharma has developed a novel
nanoencapsulation and targeted therapy platform, which is designed to improve
the therapeutic window and pharmacokinetic profile of new and existing cancer
drugs. Fulgent Pharma's lead candidate, FID-007, is currently being investigated
in the United States in a Phase I clinical trial in patients diagnosed with
various cancers including head and neck cancers, ampullary and pancreatic
cancer. Top-line data from this trial is expected in the second quarter of 2023.
Assuming positive data, we intend to seek regulatory approval in the United
States using the 505(b)(2) pathway, which may shorten the clinical trial process
and accelerate potential commercialization. We also plan to initiate Phase II
clinical trials investigating the use of FID-007 in patients diagnosed with
recurrent, or metastatic head and neck and other cancers in late 2023 and 2024,
respectively.

                       Factors Affecting Our Performance

Genetic Testing Market and Industry Trends

Genetic testing has experienced significant growth in recent years. If this
growth trend continues, we believe genetic testing could become a more accepted
part of standard medical care and the knowledge of a person's unique genetic
makeup could begin to play a more important role in the practice of medicine.
The advent of NGS technology, a relatively new genetic testing technique that
enables millions of DNA fragments to be sequenced in parallel, has dramatically
lowered the cost and improved the quality of genetic testing, contributing to
increased adoption generally and increased volumes for our tests.

The growth of genetic testing in recent years has caused increased competition
in our industry. This increased competition, as well as cost-saving initiatives
on the part of government entities and other third-party payors, has resulted in
downward pressure on the price for genetic analysis and interpretation, which
could intensify in future periods if adoption of genetic testing becomes more
widespread. We have reduced the prices for certain of our tests in recent
periods to maintain our competitive position, and increased downward pricing
pressure could harm our revenue and margins and our ability to achieve and
sustain profitability. The impact of this pricing pressure has been and may
continue to be intensified if we continue to incur increased expenses in order
to meet customer demands and make investments in our business.

While adoption of genetic testing has increased in recent years, we believe
widespread utilization has been tempered because of certain challenges and
barriers to adoption that exist in today's market. Among these industry
challenges are that genetic testing can be prohibitively expensive, only a
limited number of genetic tests are currently reimbursable, certain genetic
conditions cannot be diagnosed due to the limited scope of some genetic
analysis, genetic testing can be an inefficient process and the interpretation
of genetic results can be cumbersome and time-consuming. We have approached
these competitive and operational industry challenges by building and
continually advancing a multi-faceted technology platform that we believe will
facilitate our ability to address many of these challenges.

COVID-19 Testing Services

We have experienced volume growth after the launch of our COVID-19 testing
services in 2020. Most of the recent growth in our testing volume has resulted
from COVID-19 tests that we conduct for certain counties, states and
municipalities. The expansion of our COVID-19 testing business resulted in a
substantial change in our business. However, due to decreased demand of testing,
we experienced decreasing revenues from our COVID-19 testing services and we do
not expect substantial revenue from COVID-19 testing in 2023.

                                       50

--------------------------------------------------------------------------------

Mix of Tests Delivered

We offer our tests at different price points, and we incur different amounts and
types of costs, depending on the nature and level of complexity and
customization of the test and the specific terms we have negotiated for the
tests, which can vary from customer to customer. As a result, the mix of tests
delivered in any period, and the customers that order these tests, impacts our
financial results for the period.

Mix of Customers

We consider each single billing and paying unit to be an individual customer,
even though a unit may represent multiple physicians and healthcare providers
ordering tests. The composition and concentration of our customer base can
fluctuate from period to period, and in certain prior periods, a small number of
customers has accounted for a significant portion of our revenue. Generally, we
do not have long-term purchase agreements with any of our customers, including
these key customers, and, as result, any or all of them could decide at any time
to increase, accelerate, decrease, delay or discontinue their orders from us.
Although we believe some of these fluctuations in customer demand may be
attributable in part to the nature of our business, in which our customers can
experience significant volatility in their testing demand from period to period
in the ordinary course of their operations, these demand fluctuations,
particularly for our key customers, can have a significant impact on our
period-to-period performance regardless of their cause.

We currently classify our customers into three payor types: (i) Insurance,
including claim reimbursement from HRSA for uninsured individuals, (ii)
Institutional, including hospitals, medical institutions, other laboratories,
governmental bodies, municipalities and large corporations or (iii) Patients who
pay directly. Typically, we bill our Institutional customers for our tests and
they are responsible for paying us directly and billing their patients
separately or obtaining reimbursement from third-party payors in connection with
a patient's diagnosis related group. A small percentage of our customers are
patients, who elect to pay for tests themselves with out-of-pocket payments
after their physicians have ordered our tests.

We are making efforts to diversify our customer market, including building
relationships with hospitals and affiliated specialties related to our service
offerings. We are also pursuing relationships with payors, including Medicare,
some state Medicaid programs and commercial payors, in an effort to obtain
coverage and reimbursement for our tests to make them accessible to more
individual physicians. Generally, when we establish these new customer
relationships, we agree with the applicable payor, laboratory or other customer
to provide certain of our tests at negotiated rates, but, subject to limited
exceptions, most of these relationships do not obligate any party to order our
tests at any agreed volume or frequency or at all. Further, any relationships we
may develop with any government agencies are subject to unique risks associated
with government contracts, including cancellation if adequate appropriations for
subsequent performance periods are not made and modification or termination at
the government's convenience without prior notice. These efforts may not lead to
meaningful or any increases in our customer base and may not improve our ability
to achieve or sustain profitability.

Ability to Maintain Our Broad and Flexible Test Menu

We believe the large number of genes we incorporate into our test menu provides
a meaningful competitive advantage. We believe the breadth of genes in our
portfolio allows us to provide more comprehensive genetic information and
improves our variant detection rate, which can increase the clinical
actionability of the data we produce. The breadth of genes in our portfolio also
allows us to offer hundreds of pre-established, multi-gene panels that focus on
specified genetic conditions, including our Focus and Comprehensive oncology
panels and Beacon carrier screening panels and somatic cancer panels. In
addition, all of our genetic panel tests can be adjusted up or down to include
more or fewer genes, or customers can design their own panels to their exact
specifications, resulting in a flexible and customizable test menu. We believe
our ability to continue to offer more genes and more ordering flexibility than
our competitors could be a key contributor to the long-term growth of our
business.

Ability to Maintain Low Internal Costs

We have developed various proprietary technologies that improve our laboratory
efficiency and reduce the costs we incur to perform our tests, including our
proprietary gene probes, data algorithms, adaptive learning software and genetic
reference library. This technology platform enables us to perform each test and
deliver its results at a lower cost to us than many of our competitors, and this
low cost allows us to maintain affordable and competitive pricing for our
customers, which we believe encourages repeat ordering from existing customers
and attracts new customers. We believe this low internal cost is a key factor in
our ability to grow our business and obtain margins on our sales that allow us
to drive toward sustained profitability.

Investments in our operational capabilities could increase our cost of revenue,
but these investments could also, on a near-term and/or long-term basis,
increase our operating efficiencies and lead to cost of revenue decreases. As a
result, the amount, timing, nature and success of these investments, as well as
other influences on our cost of revenue from period to period, can impact our
costs.

                                       51
--------------------------------------------------------------------------------
Moreover, changes in our other operating expenses, due to investments in these
aspects of our business or other factors, are not taken into account but impact
our overall results, which can limit the utility of cost as an overall cost
measurement tool.

Ability to Obtain Reimbursement

As part of our business plan for future growth, we intend to pursue coverage and
reimbursement from third-party payors at a level adequate for us to achieve
profitability. However, we cannot predict whether, under what circumstances, or
at what payment levels payors will cover and reimburse for our tests, and even
if we are successful, we believe it could take several years to achieve coverage
and adequate contracted reimbursement with third-party payors. To date, we have
contracted directly with national health insurance companies to become an
in-network provider and enrolled as a supplier with the Medicare program and
some state Medicaid programs, which means that we have agreed with these payors
to provide certain of our tests at negotiated rates. Although this does not
guarantee that we will receive reimbursement for our tests from these or any
other payors at adequate levels, we believe our low cost could enhance our
ability to compete effectively in the third-party payor market and our
flexibility in establishing relationships with additional third-party payors in
the future. Our level of success in obtaining and maintaining adequate coverage
and reimbursement from third-party payors for our testing services will, we
believe, be a key factor in the rate and level of growth of our business over
the long term.

Foreign Currency Exchange Rate Fluctuations

Some of our business to date has been from non-U.S. customers, and we may record
increasing revenue levels from non-U.S. sources as we focus on growing our
international customer base. These revenue sources expose us to fluctuations in
our results associated with changes in foreign currency exchange rates depending
on the value of the U.S. dollar compared to the foreign currencies in which we
record revenue. During all periods covered by this report, we consider the
estimated effect on our revenue of foreign currency exchange rate fluctuations
to be immaterial; however, the impact of foreign currency exchange rate
fluctuations may increase in future periods as we pursue continued international
expansion.

                        Business Risks and Uncertainties

Our business and prospects are exposed to numerous risks and uncertainties. For
more information, see "Item 1A. Risk Factors" in this report.

                               Financial Overview

Revenue

We generate revenue from sales of our test and testing services. We recognize
revenue upon delivery of a report to the ordering physician or other customer
based on the established billing rate, less contractual and other adjustments,
to arrive at the amount we expect to collect.

Cost of Revenue

Cost of revenue reflects the aggregate costs incurred in delivering test
results, including "sequencing as a service," and consists of: costs of
laboratory supplies, including collection kits, personnel costs, including
salaries, employee benefit costs, bonuses and equity-based compensation
expenses; depreciation of laboratory equipment; amortization of leasehold
improvements; and allocated overhead expenses, including rent and utilities.
Costs associated with performing tests are recorded as tests are processed. We
expect cost of revenue to generally increase as and if we increase the number of
tests we deliver.

Operating Expenses

Our operating expenses are classified into five categories: research and
development; selling and marketing; general and administrative; amortization of
intangible assets; and restructuring costs. For each category except for
amortization of intangible assets, the largest component is personnel costs,
which include salaries, employee benefit costs, bonuses and equity-based
compensation expenses.

Research and Development Expenses

Research and development expenses represent costs incurred to develop our
technology and future tests and treatments. These costs consist of personnel
costs, laboratory supplies, consulting costs and allocated overhead expenses,
including rent and utilities. We expense all research and development costs in
the periods in which they are incurred. We expect our research and development
expenses will continue to increase in absolute dollars as we expect to continue
to invest in research and development activities.

                                       52

--------------------------------------------------------------------------------

Selling and Marketing Expenses

Selling and marketing expenses consist of personnel costs, customer service
expenses, direct marketing expenses, educational and promotional expenses,
market research and analysis and allocated overhead expenses, including rent and
utilities. We expense all selling and marketing costs as incurred. We expect our
selling and marketing expenses will continue to increase in absolute dollars,
primarily driven by our increased investment in sales and marketing in recent
periods, including developing and expanding our sales team, creating and
implementing new sales and marketing strategies and increasing the overall scope
of our marketing efforts.

General and Administrative Expenses

General and administrative expenses include executive, finance, accounting,
legal and human resources functions. These expenses consist of personnel costs,
audit and legal expenses, consulting costs and allocated overhead expenses,
including rent and utilities. We expense all general and administrative costs as
incurred. We expect our general and administrative expenses will continue to
increase in absolute dollars as we seek to continue to scale our operations. We
also expect to continue to incur general and administrative expenses as a result
of operating as a public company, including expenses related to compliance with
the rules and regulations of the SEC, and the Nasdaq Stock Market, additional
insurance expenses, investor relations activities and other administrative and
professional services.

Amortization of Intangible Assets

Amortization of intangible assets consist of amortization expense on customer
relationships, royalty-free technology, trade name, laboratory information
system platform and in-place intangible assets that arose from the business
combinations and a patent acquired. We amortize finite lived intangible assets
over the period of estimated benefit using the straight-line method. Indefinite
lived intangible assets are tested for impairment annually or whenever events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. If impairment is indicated, we measure the amount of the impairment
loss as the amount by which the carrying amount exceeds the fair value of the
asset.

Restructuring Costs

Restructuring costs represent one-time employee termination benefits provided to
employees associated with a newly acquired entity that were involuntarily
terminated. A plan of termination was approved and authorized by management in
the second quarter of 2022. The plan identified specific employees to be
terminated and established terms of benefits those employees would receive upon
termination. No additional costs are expected to be incurred under the plan of
termination post 2022, and the payable balance is expected to be paid off by
August 2023.

Provision for Income Taxes

Provision for income taxes consists of U.S. federal and state income taxes. A
deferred tax liability is recognized for all taxable temporary differences, and
a deferred tax asset is recognized for all deductible temporary differences,
operating losses and tax credit carryforwards. A valuation allowance is provided
when it is more likely than not that some portion or all of a deferred tax asset
will not be realized.

The factors that most significantly impact our effective tax rate include the
levels of net earnings and certain deductions, including those related to
equity-based compensation, the effect of state income taxes, return to provision
adjustments, and foreign tax rate differential. We expect that these factors
could cause our consolidated effective tax rate to differ significantly from the
U.S. federal income tax rate in future periods.

                                       53
--------------------------------------------------------------------------------
                             Results of Operations

The table below summarizes the results of our continuing operations for each of
the periods presented. Historical results are not indicative of the results to
be expected in the current period or any future period.

                                      Year Ended December 31,              $              %
                                       2022              2021           Change          Change
Statement of Operations Data:                         (dollars in thousands)
Revenue                            $    618,968       $   992,584     $  (373,616 )     (38)%
Cost of revenue                         252,067           215,533          36,534        17%
Gross profit                            366,901           777,051        (410,150 )     (53)%
Operating expenses:
Research and development                 28,910            24,219           4,691        19%
Selling and marketing                    38,918            24,439          14,479        59%
General and administrative              111,074            50,732          60,342        119%
Amortization of intangible assets         6,497             1,708           4,789        280%
Restructuring costs                       2,975                 -           2,975         *
Total operating expenses                188,374           101,098          87,276        86%
Operating income                        178,527           675,953        (497,426 )     (74)%
Interest and other income, net            5,498             1,347           4,151        308%
Income before income taxes and
gain on equity-method investment        184,025           677,300        (493,275 )     (73)%
Provision for income taxes               42,102           174,795        (132,693 )     (76)%
Income before gain on
equity-method investment                141,923           502,505        (360,582 )     (72)%
Gain on equity-method investment              -             3,734          (3,734 )     (100)%
Net income from consolidated
operations                              141,923           506,239        (364,316 )     (72)%
Net loss attributable to
noncontrolling interests                  1,480             1,125          

355 32%
Net income attributable to Fulgent $ 143,403 $ 507,364 $ (363,961 ) (72)%

* Percentage not meaningful.

Revenue

Revenue decreased $373.6 million, or 38%, from $992.6 million in 2021 to $619.0
million in 2022. The decrease in revenue between periods were primarily due to
decreased orders for our COVID-19 tests.

Revenue from non-U.S. sources increased $2.2 million, or 16%, from $13.6 million
in 2021 to $15.8 million in 2022. The increase in revenue from non-U.S. sources
between periods were primarily due to increased sales of our traditional genetic
testing services to customers in China through FF Gene Biotech which contributed
$9.2 million in total revenue in 2022.

Aggregating customers that are under common control, one of our customers,
County of Los Angeles, contributed 19% and 26% of our revenue in 2022 and 2021,
respectively.

                                       54

--------------------------------------------------------------------------------

Cost of Revenue

Cost of revenue increased $36.5 million, or 17%, from $215.5 million in 2021 to
$252.1 million in 2022. The increase was primarily due to increases of $45.1
million in personnel costs including equity-based compensation, $6.6 million in
allocated overhead expenses including security expenses, and $3.8 million in
shipping and handling expense primarily due to additions of Inform Diagnostics
and CSI, and $13.0 million in depreciation expenses primarily due to additions
in fixed assets for production, remaining useful lives of COVID-related
equipment and addition of Inform Diagnostics, partially offset by decreases of
$27.2 million in reagent and supply expenses, $5.0 million in external customer
engagement platforms, and $2.3 million in consulting and outside labor expense
related to the decreased tests delivered.

Our gross profit decreased $410.2 million, or 53%, from $777.1 million in 2021
to $366.9 million in 2022. The decrease in gross profit was primarily due to the
decrease in revenue from our COVID-19 tests and increases in cost of revenue
described above. Our gross profit as a percentage of revenue, or gross margin,
decreased from 78.3% to 59.3% due to changes in product mix.

Research and Development

Research and development expenses increased $4.7 million, or 19%, from $24.2
million in 2021 to $28.9 million in 2022. The increase was primarily due to
increases of $6.5 million in personnel costs including equity-based compensation
expense related to increased headcount, $415,000 in depreciation expense, and
$235,000 in allocated overhead expenses, partially offset by decreases of $1.5
million in reagent and supply expenses related to decreased reagent usage for
research and $1.2 million in donations to COVID-19 research fund and colorectal
cancer research made in 2021.

Selling and Marketing

Selling and marketing expenses increased $14.5 million, or 59%, from $24.4
million in 2021 to $38.9 million in 2022. The increase was primarily due to
increases of $7.1 million in personnel costs including equity-based compensation
expense related to increased headcount, $3.6 million in software expense from
Inform Diagnostics, $1.0 million in travel expenses, $967,000 in commission
expenses from CSI, $704,000 in consulting and outside labor related to marketing
projects in 2022 and $632,000 in allocated overhead expenses due to addition of
Inform Diagnostics.

General and Administrative

General and administrative expenses increased $60.3 million, or 119%, from $50.7
million in 2021 to $111.1 million in 2022. The increase was primarily due to
increases of $23.7 million in increased provision for credit losses stemming
from the cessation of funding for the HRSA program in March 2022, $14.0 million
in personnel costs including equity-based compensation expense related to
increased headcount, $6.2 million in acquisition-related costs, $4.9 million in
legal and professional fees primarily related to general corporate matters, $3.2
million in allocated overhead expenses, $3.1 million in license and permit
expense and $2.4 million in depreciation expense primarily from Inform
Diagnostics, $2.2 million in insurance expense, and $1.5 million in accounting
expenses related to financial statement and internal control audit and reviews,
partially offset by a decrease of $790,000 in consulting and outside labor
expense.

Amortization of Intangible Assets

Amortization of intangible assets represents amortization expenses on the
intangible assets that arose from the business combinations in 2022 and 2021 and
a patent purchased in 2021. The increase in amortization of intangible assets
was primarily due to additions in intangible assets from business combinations
in 2022.

Restructuring Costs

Restructuring expenses represent one-time employee termination benefits provided
to employees that were involuntarily terminated in association with the
acquisition of a new entity in 2022.

Interest and Other Income, Net

Interest and other income, net is primarily comprised of net interest income,
which was $5.3 million and $1.3 million for 2022 and 2021, respectively. This
interest income related to interest earned on various investments in marketable
securities including realized and holding gain (loss) on marketable equity
securities, net of interest expenses incurred on our notes payable and a margin
loan.

                                       55

--------------------------------------------------------------------------------

Provision for Income Taxes

Provision for income taxes were $42.1 million and $174.8 million in 2022 and
2021, respectively. The effective income tax rate was 22.7% and 25.8% of income
before income taxes for 2022 and 2021, respectively. The decrease in the
effective tax rate for 2022 relative to 2021 was primarily attributable to
international restructuring costs that were incurred in 2021 but not 2022.

See Note 11, Income Taxes, to our consolidated financial statements included in
this report for more information regarding our income taxes.

Gain on Equity-Method Investment

Gain on equity-method investment in 2021 related to our preexisting equity
interest at Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech as a result
of remeasuring to fair value our 30% equity interest held before the acquisition
of FF Gene Biotech, or the FF Gene Biotech Acquisition. The fair value of the
preexisting equity interest was determined based on the characteristics before
consummating the FF Gene Biotech Acquisition and estimated by applying income
approach and utilizing the discounted cash flow method.

Net Loss Attributable to Noncontrolling Interest

Net loss attributable to noncontrolling interest represents net loss
attributable to minority shareholders from entities not wholly owned.

                                       56
--------------------------------------------------------------------------------
                        Liquidity and Capital Resources

Liquidity and Sources of Cash

We had $852.9 million and $935.5 million in cash, cash equivalents and
marketable securities as of December 31, 2022 and 2021, respectively. Our
marketable securities primarily consist of equity securities and corporate
bonds, municipal bonds, and U.S. government and U.S. agency debt securities,
U.S. treasury bills, and Yankee debt securities as of December 31, 2022 and
2021.

Our primary uses of cash are to fund our operations and to fund strategic
acquisitions as we continue to invest in and seek to grow our business. Cash
used to fund operating expenses is impacted by the timing of our expense
payments, as reflected in the changes in our outstanding accounts payable and
accrued expenses.

We believe our existing cash, cash equivalent, and short-term marketable
securities will be sufficient to meet our anticipated cash requirements for at
least the next 12 months. Cash provided by operations has significantly
contributed to our ability to meet our liquidity needs, including paying for
capital expenditures, however, cash provided by our operations has in the past
experienced fluctuations from period to period, which we expect may continue in
the future. These fluctuations can occur because of a variety of factors,
including, among others, factors relating to the demand for our tests, the
amount and timing of sales, the prices we charge for our tests due to changes in
product mix, customer mix, general price degradation for tests, or other
factors, the rate and timing of our billing and collections cycles and the
timing and amount of our commitments and other payments. Moreover, even if our
liquidity expectations are correct, we may still seek to raise additional
capital through securities offerings, credit facilities or other debt
financings, asset sales or collaborations or licensing arrangements.

If we raise additional funds by issuing equity securities, our existing
stockholders could experience substantial dilution. Additionally, any preferred
stock we issue could provide for rights, preferences or privileges senior to
those of our common stock, and our issuance of any additional equity securities,
or the possibility of such an issuance, could cause the market price of our
common stock to decline. The terms of any debt securities we issue or borrowings
we incur, if available, could impose significant restrictions on our operations,
such as limitations on our ability to incur additional debt or issue additional
equity or other restrictions that could adversely affect our ability to conduct
our business, and would result in increased fixed payment obligations. If we
seek to sell assets or enter into collaborations or licensing arrangements to
raise capital, we may be required to accept unfavorable terms or relinquish or
license to a third party our rights to important or valuable technologies or
tests we may otherwise seek to develop ourselves. Moreover, we may incur
substantial costs in pursuing future capital, including investment banking,
legal and accounting fees, printing and distribution expenses and other similar
costs. Additional funding may not be available to us when needed, on acceptable
terms or at all. If we are not able to secure funding if and when needed and on
reasonable terms, we may be forced to delay, reduce the scope of or eliminate
one or more sales and marketing initiatives, research and development programs
or other growth plans or strategies. In addition, we may be forced to work with
a partner on one or more aspects of our tests or market development programs or
initiatives, which could lower the economic value to us of these tests, programs
or initiatives. Any such outcome could significantly harm our business,
performance and prospects.

Cash Flows

The following table summarizes cash flows from continuing operations for each of
the periods presented:

                                                      Year Ended December 31,
                                                        2022             2021
                                                           (in thousands)
Net cash provided by operating activities           $     253,520     $  

538,577

Net cash used in investing activities               $    (261,314 )   $ 

(546,548 )
Net cash (used in) provided by financing activities $ (77,141 ) $ 85,405

Operating Activities

Cash provided by operating activities in 2022 was $253.5 million. The difference
between net income and net cash provided by operating activities for the period
was primarily due to the effect of $32.7 million in the depreciation and
amortization, $32.6 million in equity-based compensation expenses, $32.6 million
in provision for credit losses, $9.1 million in unrecognized tax benefits, $4.9
million in noncash lease expenses, $4.8 million in amortization of premium on
marketable securities, and partially offset by $8.3 million in deferred taxes.
Changes in operating assets and liabilities primarily consisted of a decrease of
$68.6 million in accounts receivable mainly due to the timing of collections,
and partially offset by a negative impact on decreases of $31.3 million in other
current and non-current liabilities related to decreased accrued liabilities,
customer deposits and contract liabilities, $25.3 million in

                                       57

--------------------------------------------------------------------------------

accounts payable mainly due to the timing of payments, and $4.8 million in
operating and finance lease liabilities and an increase of $4.3 million in other
current and long-term assets.

Cash provided by operating activities in 2021 was $538.6 million. The difference
between net income and net cash provided by operating activities for the period
was primarily due to the effect of $15.9 million in equity-based compensation
expenses and $11.0 million in the depreciation and amortization. Changes in
operating assets and liabilities primarily consisted of decreases of $52.5
million in income tax payable due to tax payments made during the current period
and $12.2 million in accounts payable partially offset by the negative impact of
a decrease of $42.3 million in accounts receivable mainly due to the timing of
collections from customers and an increase of $13.1 million in accrued and other
liabilities primary due to increased customer deposits and bonus accrual.

Investing Activities

Cash used in investing activities in 2022 was $261.3 million, which primarily
related to $418.0 million in purchase of marketable securities, $172.7 million
related to business acquisitions, $18.8 million related to the purchase of fixed
assets consisting mainly of medical laboratory equipment and building
improvement, $15.0 million related to the purchase of redeemable preferred stock
and $10.0 million related to contingent consideration payouts related to
business acquisitions, partially offset by $232.5 million related to maturities
of marketable securities and $140.2 million related to proceeds from sales of
marketable securities.

Cash used in investing activities in 2021 was $546.5 million, which primarily
related to $710.5 million in purchases of marketable securities, $61.9 million
related to business acquisitions, $23.8 million related to the purchase of fixed
assets consisting mainly of medical laboratory equipment and building
improvement, and $20.0 million related to the purchase of redeemable preferred
stock, partially offset by proceeds of $185.7 million related to sales of
marketable securities and $83.8 million related to maturities of marketable
securities.

Financing Activities

Cash used in financing activities in 2022 was $77.1 million, which primarily
related to $74.3 million used in the repurchase of common stock and $1.8 million
used in common stock withholding for employee tax obligations.

Cash provided by financing activities in 2021 was $85.4 million, which primarily
related to $89.5 million proceeds from an equity distribution agreement,
partially offset by $4.2 million in common stock withholding for employee tax
obligations.


Stock Repurchase Program

In March 2022, our Board authorized a $250.0 million stock repurchase program.
The stock repurchase program has no expiration from the date of authorization.
Under the stock repurchase program, the Company may repurchase shares from time
to time in the open market or in privately negotiated transactions.

During the year ended December 31 2022, we repurchased 1.8 million shares of our
common stock at an aggregate cost of $74.3 million under the stock repurchase
program. As of December 31, 2022, a total of approximately $175.7 million
remained available for future repurchases of our common stock under our stock
repurchase programs.

Material Cash Requirements and Contractual Obligations as of December 31, 2022

As of December 31, 2022, we have an outstanding balance of $15.0 million under
our margin account, $5.2 million in notes payable to Xilong Scientific, which is
due in March 2023, and $3.8 million of an installment loan, of which, the
current portion is $461,000. See Note 8, Debt, Commitments and Contingencies, of
our consolidated financial statements included in this report.

The following summarizes our contractual obligations as of December 31, 2022:

                                                           Payments Due by Period
                                               Less than 1                                      More than 5
                                   Total          year          1-3 years       3-5 years          years
                                                               (in thousands)

Operating lease obligations (1) $ 15,879 $ 6,590 $ 6,190

    $     2,882     $         217
Finance lease obligations(2)         2,932             986           1,580             366                 -
Purchase obligations(3)             10,089           7,544           2,545               -                 -
   Total contractual obligations $  28,900     $    15,120     $    10,315     $     3,248     $         217




                                       58

--------------------------------------------------------------------------------

(1)

Represents non-cancelable operating leases. For further information, refer to
Note 9 to the Consolidated Financial Statements.

(2)

Represents non-cancelable finance leases. For further information, refer to Note
9 to the Consolidated Financial Statements.

(3)

Represents non-cancelable purchase obligations for medical lab equipment,
reagents and other supplies, see Note 8 to the Consolidated Financial
Statements.

               Critical Accounting Policies and Use of Estimates

This discussion and analysis is based on our consolidated financial statements
included in this report, which have been prepared in accordance with U.S.
Generally Accepted Accounting Principles, or U.S. GAAP. The preparation of
consolidated financial statements in accordance with U.S. GAAP requires
management to make certain estimates, judgments and assumptions and decisions
that affect the reported amounts and related disclosures, including the
selection of appropriate accounting principles and the assumptions on which to
base accounting estimates. In making these estimates and assumptions and
reaching these decisions, we apply judgment based on our understanding and
analysis of the relevant circumstances, including historical data and experience
available at the date of the consolidated financial statements, as well as
various other factors management believes to be reasonable under the
circumstances, including but not limited to valuation of intangible assets and
goodwill in recent business combinations. Actual results could differ from our
estimates. We are committed to incorporating accounting principles, assumptions
and estimates that promote the representational faithfulness, verifiability,
neutrality and transparency of the accounting information included in our
consolidated financial statements.

While our significant accounting policies are described in more detail in the
notes to the consolidated financial statements included in this report, we
believe the accounting policies discussed below used in the preparation of our
consolidated financial statements require the most significant estimates,
judgments, assumptions and decisions.

                              Revenue Recognition

We generate revenue from sales of our testing services. We currently receive
payments from: insurance, institutional customers, including hospitals, medical
institutions, other laboratories, governmental bodies, municipalities and large
corporations, and patients who pay directly.

We recognize revenue in an amount that reflects the consideration to which we
expect to be entitled in exchange for the transfer of promised goods or services
to our customers. To determine revenue recognition for contracts with customers,
the Company performs the following steps: (1) identifies the contract with the
customer, (2) identifies the performance obligations in the contract, (3)
determines the transaction price, (4) allocates the transaction price to the
performance obligations in the contract, and (5) recognizes revenue when (or as)
the entity satisfies a performance obligation.

Our test results are primarily delivered electronically. We bill certain
customers for shipping and handling fees incurred by us associated with our
tests, and shipping and handling fees billed to customers are included in
revenue, and shipping and handling fees incurred are included in cost of revenue
in the accompanying Consolidated Statements of Income.

While the transaction price is typically stated within the contract, we may
accept payments from third-party payors that are less than the contractually
stated price and is therefore variable consideration. Accounting for insurance
contracts includes estimation of the transaction price, defined as the amount we
expect to be entitled to receive in exchange for providing the services under
the contract. Due to our out-of-network status with the majority of insurance
payors for COVID-19 tests, estimation of the transaction price represents
variable consideration.

                  Valuation of Goodwill and Intangible Assets

The valuation of assets acquired in a business combination and asset impairment
reviews require the use of significant estimates and assumptions. The
acquisition method of accounting for business combinations requires us to
estimate the fair value of assets acquired, liabilities assumed, and any
noncontrolling interest in an acquired business to properly allocate purchase
price consideration between assets that are depreciated or amortized and
goodwill.

Long-lived assets, including property and equipment and intangible assets,
excluding goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated future cash
flows expected from an asset and its eventual disposition is less than the
carrying amount.

We evaluate goodwill annually or more frequently if events or changes in
circumstances indicate that goodwill may be impaired. In accordance with
guidance related to impairment testing, we have the option to first assess
qualitative factors to determine

                                       59
--------------------------------------------------------------------------------
whether it is necessary to perform the quantitative goodwill impairment test. If
the qualitative assessment option is not elected, or if the qualitative
assessment indicates that it is more likely than not that the fair value is less
than its carrying amount, a quantitative analysis is then performed. The
quantitative analysis, if performed, compares the fair value of the reporting
unit with its respective carrying amount, including goodwill. If the fair value
of the reporting unit exceeds its carrying amount, including goodwill, goodwill
is considered not to be impaired and no additional steps are necessary. If the
fair value is less than the carrying amount, including goodwill, then an
impairment adjustment must be recorded up to the carrying amount of goodwill.

                        Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, to our consolidated
financial statements included in this report for information about recent
accounting pronouncements.

                         Off-Balance Sheet Arrangements

We did not have, and do not currently have, any off-balance sheet arrangements
during the periods presented, as defined in the rules and regulations of the
SEC, that have or are reasonably likely to have a current or future effect on
our financial condition, changes in financial condition, revenue or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.