Fulgent Genetics, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Q4 2020 Fulgent Genetics Earnings Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touch-tone telephone. As a reminder, this call is being recorded. I would now like to hand the conference over to your host today, Ms. Nicole Borcia with Investor Relations. Please go ahead.

Great, thanks. Good afternoon and welcome to the Fulgent Genetics first quarter 2020 financial results conference call. On the call today, we have Ming Hsieh, Chief Executive Officer, Paul Kim, Chief Financial Officer, and Brandon Perthuis, Chief Commercial Officer. The company's press release discussing its financial results is available in the investor relations section of the company's website, FulgentGenetics.com. An audio replay of this call will be available shortly after the call concludes. Please visit the investor relations section of the company's website to access the audio replay. Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on our current views and assumptions, which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties, and changes in circumstances that may cause actual results to differ from those described in the forward-looking statements. The company assumes no obligation to update any of the forward-looking statements it may make today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today. Thank you for joining us. including the previously filed 10-K for the full year 2019, which is available on the company's investor relations website. Management's prepared remarks, including discussions of earnings and earnings per share, contain financial measures not prepared in accordance with accounting principles generally accepted in the United States or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but they should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the first quarter of 2020 for more information, including the description of how the company calculates non-GAAP earnings and earnings per share and a reconciliation of these financial metrics to income and income per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming. Ming?

Thank you, Nicole. Good afternoon, and thank you for joining our call today to discuss our first quarter 2020 results. I will reveal the highlights from our first quarter before handing over to our chief commercial officer, and Brandon Perthuis to provide updates on our go-to-market strategy. And finally, Paul will discuss our financial results and our outlook in detail. While we had a good start to the year, the global proliferation of the novel coronavirus has had a meaningful impact on our business, both in terms of demands of our core testing business as well as on our operation. Specifically, due to early decisive action we took to recovery our company to address the large market needed for testing solutions in this pandemic, As we discussed briefly on our last earning call, we were quickly to pivot our resources to focus on development and the launch of testing solutions for COVID-19 in the first quarter. I will speak this dynamics in detail in a moment. But first, I will provide A quick update on our results for the first quarter. Revenue was in line with our expectations for the first quarter, growing 44% year-over-year to $7.8 million. Billable test increased 75% year-over-year to $13,163. ASP was 589, essentially flat with what we saw in Q4, while cost per test increased 18% from Q4. Non-GAAP gross margins in the first quarter was 51%, up approximately 300 basis points from the first quarter last year, and down approximately 8% of points sequentially. The sequential decline in gross margin was due to both tax mix along with investment and expenses related to roll out of our COVID-19 test. Adjusted EBITDA loss was $506,000 in the first quarter. Before I get into the impact of COVID-19, I want to spend a A few minutes discussing what we saw across our core business. As you can imagine, we saw a significant slowdown in test volume activity beginning in March. As states began to institute shelter-in-places Mondays and non-essential testing for traditional genetic testing materially decreased, During January and February, our oncology, reproductive health, and pediatric business continued to drive the majority of the warnings we saw. Our customer base continued to diversify as we added more core customers and saw strength across all segments of our business before experiencing a slowdown in March. As you all know, the coronavirus has caused significant disruption in our everyday life, which has impacted businesses around the world in various ways. I would like to discuss the virus has impacted our business operations, as well as how we plan to capture shares in the market for COVID-19 testing solutions to drive incremental revenue. First, from the operations standpoint, our lab in Tampa City continues to operate and process samples under strict health and safety precautions. Due to our lab offering rare screening products for COVID-19, it qualifies as an essential business under California's shelter-in-place mandate, so we have been able to operate normally without any disruption. In fact, we expand our lab capacity during this crisis and invest in resources to achieve biosafety certifications required to handle COVID-19 tests. Because of this investment, we are able to offer end-to-end tests for COVID, which is largely appealing to our customers. Outside the lab, our employees have been operating remotely, coming into the office as an immediate basis with minimum disruption. We are thankful to our employees, both in the lab and at home, who have continued to support our operations around the club during these challenging times. From our products, Development standpoint, we have been working on a number of different initiatives since the virus began to spread in February. Our goal has been to develop quick quality tests that are readily available and accessible to both healthcare providers and individuals to help alleviate the shortage we have seen in testing capacities in the overall market. We announced and launched two distinct tests for COVID-19. One of our tests is based on RT-PCR technology, which is the most common approach for COVID-19 tests in the market today. Launched in early April, this test offered the most rapid turnaround time giving their more limited targeting of two distinct regions with COVID-19. In March, we also launched a test based on the next generation sequencing technology, which used a more comprehensive laboratory and the computation method to detect the virus that caught COVID-19. While the complexity of this NGS test based on results in a long Thank you very much. Overwhelming market event. In addition to the two tests we have launched for healthcare providers, we also have been working on an at-home test kit for COVID-19 through our consumer initiative genetic testing platform, Picture Genetics. Brandon will talk more about this momentarily. I'm very pleased with our ability to develop and launch this test in such a short amount of time, given the resources required and the relative size of our organization. Over the years, we have talked a lot about our flexible technology platform and how to enable us to offer one of the broadest genetic test menus in the market. The ability to develop this test for COVID-19 is a testament to the fact that our technology is truly differentiated. And the platform we have built has enabled us to pivot quickly to offer a wide range of testing solutions with a minimum incremental overhead. Paul will discuss the financial impact of COVID-19 in more detail. But on a high level, the investment we made in this quarter in developing tests for COVID-19 resulted in incremental expanding of approximately $1 million. In addition, costs across our business, including the procurement of supplies, which is still difficult to source, we are confident that we will see a strong return on this investment, which will be beneficial to our business in the long term. While the circumstances surrounding COVID-19 are unfortunate and our heart goes to those who have been impacted, we believe our response to the need for the testing has damaged the whole 4G platform and technology is truly differentiated from the others in the market. We'll look ahead to the rest of this year. We'll continue to focus on offering accessible testing solutions for COVID-19 brothers without losing focus on our core business opportunities, which we hope will pick up as we continue to believe that the long-term need for genetic testing On the flip side, we also believe our capabilities will be greater and addressable market to be larger than before this pandemic. With that, I would like to turn the call over to Brandon Perthuis to provide an update on our go-to-market initiative, including insight on the We are seeing for our COVID-19 tests. Brandon?