Fulgent Genetics, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 Fulgent Genetics Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session, and to ask a question, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded on 9 November 2020. If you require any further assistance, please press the star zero. I would now like to hand the conference over to your first speaker for today, the head of investor relations, Ms. Nicole Bolshev. Thank you. Please go ahead, ma'am.

Great. Thanks very much. Good afternoon, and welcome to the Fulgent Genetics Third Quarter 2020 Financial Results Conference Call. On the call today are 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, bulgentgenetics.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 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 with the understanding that actual events including the company's actual future results may be materially different in what is described in or implied by these forward-looking statements. Please review the more detailed discussions related to these forward-looking statements including discussions of some of the risk factors that may cause results to differ from those described in these forward-looking statements contained in the company's filings with the Securities and Exchange Commission including the previously filed 10-Q for the quarter-ended June 30, 2020, 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 third 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 measures to income per share. the most directly comparable GAAP financial metrics. With that, I'd now like to turn the call over to Ming.

Thank you, Nicole. And thank you for joining our call today to discuss our third quarter 2020 results. I will review the highlights from our third quarter before handing over to our Chief Commercial Officer, Brandon Perthuis, to provide updates on our commercial success and the go-to-market strategy. And finally, Paul will discuss our financial results and outlook in detail. The COVID-19 pandemic has continued to challenge both our health and our way of life this year. As a fortune, we took early action to leverage our technology platform to build out a comprehensive testing offering to meet the increased demand for reliable testing solutions. While we have come a long way together in our effort to combat this pandemic, we still have a long road ahead of us as we look to return to normalcy. will continue to do our part at 4GEN to help to give testing solutions to individuals and organizations that need them so that business, school, sporting events, travel, and social engagement can resume safely. Our record growth in the third quarter is a true testament to the scalability of our technology platform. We discussed last quarter how the often seen events of this pandemic has really proven Fulgen Genetics is as a company and the results we discussed today to go one step further to demonstrate how the platform is truly unmatched in the genetic testing industry. With a modest level of investment, in the infrastructure and headcount were able to grow our test volume almost 50 times of 5,000% of that in the third quarter of last year. And by more than five times of 500% of that in the second quarter of this year. At the same time, Our gross margin improved by 19 percentage points sequentially with the operating expense only roughly doubling on a gap basis, which translates into operating income of $63.5 million and a record just EBITDA of $67.4 million. This growth and the profitability were made possible by the efficiencies we have created across our business from our life operations and our information management and the reporting system to have our own proprietary biochemistry and reagents. to our enhanced reimbursement capabilities and our sales team who have recovered a significant amount of ground and signing a number of substantial agreements securing large volume of tasks in the quarter ahead. I have grown our headcount from 151 at the beginning of 2020 to approximately 500 employees and consultants today. None of this was done overnight, and we believe we have strong foundations on which to grow our core business in the years ahead. To that end, we believe the investment we made to build our COVID-19 test initiatives will continue to benefit our business in long term. There are three particular areas of strength I would like to elaborate on, especially in the quality and the scale of our customer base. The traction we have insurance provider on reimbursement, and we haven't seen our commercial initiatives at a home test offering picture genetic. On the customer front, we have made a meaningful strike in signed in large agreements with a range of commercial organizations, municipalities, and the medical institutions. Some of this we have announced publicly, but we have one number of additional strategic customers that we have not publicly disclosed. Many of these institutions have never heard of 4GEN Genetics before the pandemic. and now we have proven our ability to deliver large volumes of high quality tests in a quick and efficient manner. We have seen increase of volume of our course genetic tests from a number of new customers. Brandon will elaborate further on some of this customer dynamics. Second point I want is on the reimbursement. Historically, Our customers have predominantly been cash paying customers, with very little revenue coming through the reimbursement. Given our rapid expansion in new customers, combined with quarterly test volume, which now exceeds one million tests, this has accelerated the need of reimbursement agreements with insurance providers. We believe that having this reimbursement agreement in place will continue to drive business from the customers in a way that we haven't seen prior to the pandemic. The third areas I want to highlight as an avenue of durable growth is our consumer offering. Picture Genetics. We launched the platform in 2019. to make a clinical-grade genetic testing available to individuals in the comfort of their homes without needing to visit a doctor's office. Our original offering consists of three tests, carrier screening, newborn screening, and adult wellness. We added a home COVID-19 test service to the platform in late June. and since then we have seen very strong demand for this at-home test. As we stated repeatedly on previous earning calls, the cornerstone of our business is our technology and its flexible platform which allow us to develop, validate, customize and launch our products and services. The investment made in our technology Stretchbacks almost a decade and enable all the facts of our business, which produce notable efficiency and scalability. We plan to getting even more aggressive in our continued investment technology to further separate us from our peers in the future. We welcome the news about the very promising vaccine development from Pfizer today. Since we have made a $2.5 million investment in a private company called Boston Molecules during this quarter. We believe this could enhance and lead for Genetics to develop and enhance our neutralizing antibody test for COVID-19 immunity especially for the people who get the vaccine or patients recovered from COVID-19. In the meantime, we continue to add contents and add additional tests for our core business to address the growing needs for the genetic testing market. In sum, armed with our technology, The transformation of our oral business and that we expand the capability will allow us to make a notable footprint in the screening and genetic testing market in the years ahead. With that, I call over to Brandon to dig into more about the customer dynamic we're seeing in this quarter and elaborate on the long-term drive for our momentum. Brandon.