Article:
Biopharmaceutical company Fulcrum Therapeutics, Inc. (Ticker: FULC) has reported an operating lease right-of-use asset of $10.8 million as it adopted the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2016-02, which is set to be effective from January 1, 2022.
This comes as the company transitions its accounting standard methodology in line with the FASB’s update regarding lease reporting on balance sheets. Historically, operating leases were not required to be recorded on balance sheets, a practice that has changed with the implementation of the new standard.
With this change, Fulcrum Therapeutics has removed the deferred rent balances from its balance sheet, which were previously recorded under Accounting Standards Codification 840. In addition to the operating lease right-of-use assets, the company established a current operating lease liability of $2.2 million and an operating lease liability, net of current portion, of $13.4 million.
Under the FASB’s ASU 2016-02, there are now two types of leases: financing leases and operating leases. This classification is determined by whether the lease is effectively a financed purchase by the lessee. If it is, it will be classified as a financing lease, otherwise, it will classify as an operating lease. This classification is essential in determining how lease expense is recognized, either based on an effective interest method or a straight-line basis over the lease term.
Fulcrum’s transition method under ASU 2016-02 allows the company to leverage certain expedients, enabling it to continue applying legacy guidance while not reassessing previous accounting conclusions around lease arrangements, classifications, and treatment of initial direct costs. The company elected to apply the practical expedient of not separating lease and non-lease components for new and modified leases, as well as opting for an accounting policy to exclude leases with an initial term of twelve months or less from being reported on the balance sheet.
The actual impact of ASU 2016-02 on Fulcrum Therapeutics’ consolidated financial statements remains minimal, as the adoption of this new standard did not substantially affect the company’s consolidated statements of operations and comprehensive loss, nor its consolidated statement of cash flows for the year ended December 31, 2022.
By complying with the FASB ASU 2016-02 standard, Fulcrum Therapeutics shows its commitment to adhering to evolving accounting practices and ensuring transparency in its financial reporting. The transition also demonstrates the company’s proactive approach towards regulatory changes and industry best practices, which is critical in maintaining investor confidence in a constantly evolving business environment.
As an emerging growth company, Fulcrum Therapeutics is eligible for certain exemptions from various reporting requirements that are applicable to other public companies. This includes extended transition periods for adopting new or revised accounting standards, which the company has elected to utilize as part of the ASU 2016-02 leasing standard transition.
Fulcrum Therapeutics’ adoption of ASU 2016-02 demonstrates a shift in accounting practices for many companies in response to changing regulations. The updated accounting standards aim to provide better transparency and understanding of a company’s financial position by reflecting lease commitments on the balance sheet and ultimately contributing to greater decision-making for investors.
Income Statement
Financials in millions USD. Fiscal year is January – December. source
| Year | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | |
|---|---|---|---|---|---|---|---|
| 0 | Revenue | 6.34 | 19.16 | 8.82 | 0 | 0 | 0 |
| 1 | Revenue Growth (YoY) | -66.90% | 117.19% | – | – | – | – |
| 2 | Gross Profit | 6.34 | 19.16 | 8.82 | 0 | 0 | 0 |
| 3 | Selling, General & Admin | 41.69 | 30.52 | 21.39 | 13.15 | 8.31 | 4.5 |
| 4 | Research & Development | 76.78 | 69.7 | 59.04 | 71.07 | 25.18 | 18.49 |
| 5 | Other Operating Expenses | 0.43 | 0 | 0 | 0 | 0 | 0 |
| 6 | Operating Expenses | 118.9 | 100.22 | 80.43 | 84.22 | 33.5 | 22.99 |
| 7 | Operating Income | -112.56 | -81.05 | -71.61 | -84.22 | -33.5 | -22.99 |
| 8 | Other Expense / Income | -2.69 | -0.21 | -0.79 | -1.54 | -0.91 | -0.03 |
| 9 | Pretax Income | -109.87 | -80.85 | -70.82 | -82.68 | -32.59 | -22.96 |
| 10 | Net Income | -109.87 | -80.85 | -70.82 | -82.68 | -32.59 | -22.96 |
| 11 | Preferred Dividends | 0 | 0 | 0 | 7.13 | 6.56 | 2.41 |
| 12 | Net Income Common | -109.87 | -80.85 | -70.82 | -89.81 | -39.15 | -25.37 |
| 13 | Shares Outstanding (Basic) | 45 | 35 | 25 | 11 | 1 | 1 |
| 14 | Shares Outstanding (Diluted) | 45 | 35 | 25 | 11 | 1 | 1 |
| 15 | Shares Change | 27.23% | 39.47% | 129.53% | 778.76% | 76.79% | – |
| 16 | EPS (Basic) | -2.44 | -2.29 | -2.79 | -8.13 | -31.14 | -35.68 |
| 17 | EPS (Diluted) | -2.44 | -2.29 | -2.79 | -8.13 | -31.14 | -35.68 |
| 18 | Free Cash Flow Per Share | -2.20 | -2.27 | -2.17 | -3.65 | -25.09 | -30.92 |
| 19 | Gross Margin | 100.00% | 100.00% | 100.00% | – | – | – |
| 20 | Operating Margin | -1774.85% | -422.97% | -811.64% | – | – | – |
| 21 | Profit Margin | -1732.43% | -421.89% | -802.66% | – | – | – |
| 22 | Free Cash Flow Margin | -1561.23% | -418.47% | -623.34% | – | – | – |
| 23 | EBITDA | -107.46 | -78.33 | -68.44 | -80.62 | -31.24 | -22.25 |
| 24 | EBITDA Margin | -1694.37% | -408.77% | -775.70% | – | – | – |
| 25 | Depreciation & Amortization | 2.41 | 2.52 | 2.38 | 2.05 | 1.35 | 0.72 |
| 26 | EBIT | -109.87 | -80.85 | -70.82 | -82.68 | -32.59 | -22.96 |
| 27 | EBIT Margin | -1732.43% | -421.89% | -802.66% | – | – | – |
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