Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Fulgent Genetics Earnings Conference Call. At this time all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to turn the call over to your host, Ms. Nicole Borsje, with Investor Relations. Please go ahead, ma’am.

Great, thanks. Good afternoon, and welcome to the Fulgent Genetics second quarter 2020 financial results conference call. On the call today is 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. 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 these 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 such 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 from what is described in or implied by these forward-looking statements. Please review the 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 March 31, 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 second 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 and income per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming.

Thank you, Nicole. Good afternoon, and thank you for joining our call today to discuss our second quarter 2020 results. I will review the highlights from our second 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 our outlook in detail. Before I comment on our market strategy and business, I want to start by saying our hearts go out to those who have been impacted by COVID-19. We are in this together and we are doing as much as we can to drive this pandemic by offering our services, which are critical for detection and follow-up care that enable isolation and provide the contact and treatment information to enable authorities to implement coordinated policies. The unforeseen demand this year has brought the need for testing capacity into the public spotlight more than ever. Moreover, the urgency of this pandemic has pushed the limits of testing capacity across our industry; specifically, organizations have been challenged to research and develop new integrated testing capabilities and compress timelines. While navigating the FDA approval process and scaling production on an accelerated timetable with new public health and social distancing mandates in mind, many companies across our industry have gone through this process to serve the greater needs of public health solutions for both governmental and commercial customers. The global COVID-19 pandemic has tested Fulgent as a company. We are a technology company with a proprietary technology platform built for massive scale. For those who have followed us over the years, our technology platform is a differentiator between ourselves and other companies in the industry. This is now evident in our financial and operational results. With a strong and minimal investment, we have been able to organically develop and launch multiple tests for COVID-19, receiving validation from the FDA for several tests and winning major accounts, which has driven a significant inflection point in our business and outlook. Our second quarter reported test volume increased approximately 1300% or 13-fold from our first quarter, and we anticipate continued accelerated growth for the second half of the year, which Paul will detail in our guidance. On our last call, we commented that our traditional genetic testing business might decline approximately 25% to 30% in Q2. However, given the incremental business we saw from signing additional strategic customers in the quarter and a record rebound from our existing customers during the month of June, volumes ordered from our core business in Q2 were flat compared to what we saw in Q1. Even amidst ongoing uncertainties regarding lockdowns across various industries, our traditional business continued to gain momentum in July, and we anticipate healthy growth in the second half of 2020. Our COVID-19 business has surpassed our most optimistic expectations in response to the large and growing need for testing. Our quality and ability to meet and exceed customer expectations enable us to be an essential part of the programs and initiatives by large organizations. We see numerous opportunities with these customers beyond COVID-19 in various markets where they utilize our technology and services. I want to spend a few minutes to stress the uniqueness of our technology platform, which is based on high-throughput computing software. Our core software team has extensive experience in developing innovative programs for processing power and database management. These highly complex orders are fundamental to our technology. Our key engineering team is also working in the field of artificial intelligence, using innovative hyper pipelines and massive computing architectures to apply data flow technology that enables high-speed computing. This also includes information fusion technology, which integrates data mining and fusion technology, and system integration tools, as well as techniques to consolidate information from large and saturated systems. Fusion technology utilizes deep learning technology to enhance workflow and architecture while developing seamless integration of customer IT environments. With our technology and software engineering expertise, Fulgent has developed its technology platform for the healthcare industry. Recent unforeseen events surrounding COVID-19 and overwhelming demand for our services have confirmed the strength of our technology platform, and we are pleased with the results. We have already developed and launched tests for major customers who see the benefits of our platform in providing greater automation, security, reliability, quality, and efficiency. We have scaled our operations from approximately 15,000 tests per quarter to 180,000 in Q2 and are on track to reach over 700,000 tests in the coming quarters. Our technology is now the cornerstone of all facets of our business, including cloud computing, pipeline services, record management, web portal services, clinical workflows, sequencing as a service, and automated laboratory information management systems. In addition to our superior technology, we have a great team that has enabled our success in these challenging environments. Our technology team has prior experience in developing and servicing numerous contracts exceeding $100 million each in previous global crises, such as the aftermath of 9/11 in 2001. We also have a management team comprised of experienced officers who have successfully scaled businesses prior to Fulgent. Our headcount has grown from almost 150 people at the beginning of 2020 to over 300 today. We have effectively managed the high demand for our services by relying on senior business operators who can efficiently oversee supply chain management, operational logistics, quality controls, data security, and intensive customer relationships during times of crisis and shortages. As evidenced by our volumes, we have made significant strides in our operational capabilities, including capacity expansion. Additionally, we have enhanced our go-to-market strategy with the launch of COVID-19 at-home tests. We received remarkable Emergency Use Authorizations (EUAs) from the FDA during the quarter, with more EUAs pending and additional applications to be filed in the near future. Moreover, as we gain traction in the reimbursement market, we expect to further fuel our traditional genetic NGS business. I will now turn over the call to Brandon who will cover business areas in further detail. Brandon?

Thanks, Ming. This quarter, more than ever, we demonstrated the power of the Fulgent technology platform, and we played a meaningful role in the fight against the COVID-19 pandemic. At this time, we’ve received two EUAs from the FDA: one for our RT-PCR test, which is administered by providers, and a second for our at-home COVID-19 test, Picture by Fulgent, which we launched in June. We have additional EUAs pending, and we will issue updates as they become available. At this time, Fulgent has an impressive array of COVID-19 customers ranging from some of the largest municipalities in the United States to Fortune 100 companies, large specialty care companies with thousands of locations, large hospital systems with hundreds of locations, and assisted living facilities across the United States, among others. In addition, we recently won a competitive Request for Proposal (RFP) to provide testing for student athletes for a major NCAA conference. Clients are choosing Fulgent because we have EUA approval, our turnaround time is consistently among the best in our industry, with a median timeframe of delivering reports within 24 hours from receipt of the sample. The availability of our custom COVID-19 portal for both ordering and reporting enhances our rapid ability to interface with HO7, API, or other methods. As a case in point, we were able to interface with large municipalities in less than three days. We now have numerous clients sending thousands of COVID-19 samples per day while still maintaining the bandwidth to serve smaller clinics in addition to these large organizations. Operationally, it has been an impressive overhaul. We are now running 24 hours a day, seven days a week. We’ve doubled our company headcount in the last three months to over 300. We’ve scaled COVID-19 capacity from a couple thousand tests per day to 10,000 per day, and now to 30,000 tests per day. Our capabilities continue to expand to meet existing and future testing demand. To support this capacity, we have secured guaranteed contracts with key suppliers. While managing such a dynamic supply chain has been a challenge, we have encountered zero supply chain constraints due to our contracts and strong relationships with our vendors. We have achieved this while still delivering on the largest genetic testing volume in the industry, now over 18,000 tests. A challenging area our high-volume customers have identified has been managing logistics and reporting, particularly for drive-through testing sites and large corporations wanting to perform routine employee testing. To assist our clients and allow for greater integration into the process, we have rolled out three end-to-end web-based solutions. The first solution is the Fulgent Community COVID-19 platform. This is a complete solution for managing drive-through and walk-up testing sites, allowing patients to visit our website, select a location, gather appointments, and complete test questionnaires. This new solution enables administrators of the sites to set the number of lanes, the number of available time slots, and manage the collection process. On the back-end, we have reporting solutions that deliver results directly to patients’ mobile phones and include key contact tracing functionality. Today, San Bernardino County, Los Angeles County, the City of Long Beach, Santa Clara County, and Orange County are using this platform to manage their drive-through and walk-up testing sites. The second solution is the Fulgent Enterprise COVID-19 screening platform, an end-to-end solution for companies conducting routine repeat testing. We provide the solution where Fulgent offers locations our platform, a barcode scanner, pre-barcoded tubes, and collection materials. An employee can simply approach the customer station, scan their employee badge or other identifiers, self-administer a simple nasal swab, and drop it into a collection box to be sent to Fulgent. A mobile version of this solution is also available, allowing the same operation to be completed using a mobile device, either online or offline. Reports are electronically delivered to employees within 24 hours. The third solution is Picture COVID-19 for partners, based on the FDA EUA home collection COVID-19 test. Organizations can order Picture COVID-19 tests in bulk and manage the bulk order and results via the Picture COVID-19 partner portal. This solution is particularly suited for schools, where students need to be tested before returning to campus. We believe these solutions are a powerful demonstration of our technology platform and our capacity to rapidly develop new solutions and products, fostering deep relationships with our clients. The demand for COVID-19 services is strong, and the pipeline for additional customers is quite remarkable. In addition to our critical COVID-19 clients, we are seeing traction for our Picture at-home COVID-19 test. Patients value the convenience of an at-home test, which is a great resource to conserve valuable physician resources and personal protective equipment. We initially launched this service at a $119 cash price; however, we recently started to accept insurance, and we are only charging $39 out of pocket to cover the cost of the kit and bidirectional shipping. This new insurance component includes upfront automated verification of benefits and is integrated with our revenue cycle management system for simplified insurance claims filing. This is another example of how our innovative Fulgent technology platform drives efficiencies across our entire organization. We believe this reduced price and the convenience factor will drive continued adoption. In addition to COVID-19 testing, we continue to offer multiple tests through our Picture platform, including Picture Newborn, expanded newborn screening products, Picture Parenting, genetic tests for individuals looking to start or expand their families, and Picture Wellness, which assesses those who want to learn more about genes linked to medically relevant conditions. We view Picture as a platform to make genetic testing easier and faster to access, and we believe it will be a powerful delivery model in the future. Over the last few months, our go-to-market strategy has evolved significantly, which has been crucial for our business focus throughout the year. During Q2, we added a significant number of new accounts in areas such as rare diseases, reproductive health, hereditary cancer, and cardiovascular genetics. These new opportunities stem from our increased commercial strength, rapidly expanding test menu, competitive pricing, and turnaround times. As Ming mentioned, despite the unprecedented disruption our nation has faced, our core business orders remained essentially flat with Q1 due to a rebound in orders during June and the addition of several new accounts. With our increased customer base and opportunities, we anticipate a return to growth in traditional genetic testing as the country continues to reopen. Additionally, our sequencing as a service segment continues to gain momentum, boosted by COVID-19 as many organizations look to sequence the genome of SARS-CoV-2. We also see positive developments regarding reimbursement coverage from commercial payers, driven by the validation of our tests, the quality of our offerings, and the strong volume trajectory in our segments. Over the coming months, we will remain laser-focused on delivering quality COVID-19 testing, expanding our COVID-19 capabilities, and maintaining a 24-hour turnaround time while simultaneously expanding our non-COVID-19 business with new client acquisition, expanded test usage from existing genetic testing clients, and leveraging our enhanced go-to-market strategy, including at-home testing and added coverage from commercial insurance payers. I’ll now turn the call over to Paul to provide the details on our financial performance in the second quarter, as well as updates on our outlook. Paul?

Thanks, Brandon. Second quarter revenues totaled $17.3 million, an increase of 105% compared to the second quarter of 2019. Our U.S. business remains the most significant driver of our momentum. Revenue from the U.S. grew 141% year-over-year in the second quarter, accounting for 93% of total revenues during the quarter. Billable tests in the quarter totaled 180,500, representing a growth of 1003% compared to Q2 of last year. The vast majority of this volume was related to our COVID-19 business. Our average selling price (ASP) for the quarter was $96, decreasing 84% from the first quarter. Cost per test for the quarter was $43 on a GAAP basis and $41 excluding equity-based compensation of $270,000. Our gross margin improved by 8 points sequentially, and non-GAAP gross margin improved by 6 percentage points sequentially. The primary reasons for the decrease in cost per test were a significant mix of COVID-19 volumes. However, even with the considerable investments we made in operations, including equipment and personnel, our gross margins improved notably from the prior quarter due to leveraging our technology platform. Now turning to operating expenses, our non-GAAP operating margin improved approximately 34 percentage points sequentially to a positive 21.5%. We have made aggressive investments across all facets of our organization, including operations, sales, marketing, and general and administrative expenses, and the power of our technology platform has showed extreme leverage within our business model. We believe this leverage is just the beginning of what’s in store for the remainder of the year. Our total GAAP operating expenses were $6.9 million for the second quarter, up from $5.6 million in the first quarter. Non-GAAP operating expenses totaled $6.1 million, up from $4.9 million in the last quarter. In a single quarter, we have already fully recovered the investments made in our COVID-19 test research, development, and offerings, and we anticipate handsome returns from these investments going forward. The adjusted EBITDA loss for the second quarter was $4.3 million, compared to a loss of $1.5 million in the second quarter of 2019. On a non-GAAP basis, and excluding equity-based compensation expense, income for the quarter was $4 million, or $0.17 per share, based on a $22.9 million weighted average diluted common shares outstanding. Turning to our balance sheet, we are comfortable with our cash and liquidity position. We ended the second quarter with $66.4 million in cash and cash equivalents and marketable securities, with no debt. Now moving on to our outlook, we see this quarter as an inflection point for our overall business. We are witnessing strength in our traditional genetic testing and opportunities within our sequencing as a service segment. We are seeing good traction in reimbursements, high demand for our Picture platform, and significant demand for our COVID product and service offerings. Most importantly, we are observing our customers appreciating our distinct advantage in leveraging our technology platform. We are making overall testing more affordable, with average ASPs now below $100, combined with our robust offerings and quality, which is driving demand. Utilizing our technology platform, we can exponentially ramp-up capacity, maintain turnaround times within 24 hours, and run a business that generates returns for shareholders. As Ming mentioned, the recent global crisis has stress-tested the viability of many business models, yet the same stress has elevated Fulgent’s technology and science to the forefront, distinguishing us from others. Based on the explosive market demand and the quality of our customers, we anticipate that our upward trajectory and transformation will continue for the balance of 2020. We project test volumes for the year to exceed 1.3 million, translating to over $120 million in revenues. With our extreme leverage in the model, this translates into expanding GAAP net income and excluding stock-based compensation, resulting in a non-GAAP income of approximately $25 million, or about $1 per share for our shareholders in fiscal 2020. Due to the transition we are making in expanding our business and our positive outlook, we have recently entered into a purchase agreement for a 62,000 square foot building for approximately $15.4 million in El Monte. This building is less than a mile away from our Temple City location. For several years, we have leased space in the El Monte location for software engineering and administrative departments, and we are familiar with this building. This new facility will be more than double the size of our Temple City building and is expected to improve our capacity and operational efficiency by at least 200% compared to our Temple City operations, translating to an eventual capacity of 60,000 tests per day. We will continue to maintain our laboratory in Temple City, which currently has a capacity of 30,000 tests per day. Thus, the El Monte building will serve as an expansion of our footprint in the Los Angeles area. Drawing from our past experiences as business operators, Ming, myself, and our CRO have gone through similar situations at our previous company, Cogent Inc. After 9/11, we utilized software to differentiate and enhance our business model during crises and stress periods. We successfully implemented numerous systems for global clients, exceeding $100 million per implementation. Over 20 quarters, this established a consistent return of 25% to 30% operating margins, generating over a quarter billion dollars in cash for our balance sheet at that previous company. As a final note, we appreciate our patient shareholders for their support over the last four years since going public, and we look forward to sharing updates on our business in future quarters. Thank you for joining our call today. We can now open it up for questions.

Your first question comes from the line of Sung Ji Nam with BTIG. Your line is now open.

Hi. Thanks for taking the questions. Congratulations on a phenomenal quarter and also thank you for everything you guys are doing around COVID testing. Maybe just a few questions on COVID testing. I was curious about the different offerings you have – the three end-to-end web-based solutions. As you look out for the balance of the year and beyond, how do you see the mix of those three different types of testing opportunities? Will it be a pretty evenly spread situation? Or do you anticipate more volume through one of those than others?

Brandon, why don’t you take the call first?

Yes, certainly. Thank you, Sung Ji. To your question, we actually probably have more than three different options at this point, but let’s focus on the three main modalities: professionally administered tests from hospitals or clinics, drive-through tests, and at-home testing, along with back-to-school and back-to-work programs. Currently, we are seeing significant volume from the drive-through testing facilities which are being run expertly by various municipalities, providing access to testing for those in need. However, as the country continues to reopen, we anticipate strong demand for back-to-work and back-to-school testing. We have developed two platforms to assist with that. At Fulgent, we test our employees daily using one of those platforms, and it is extremely convenient. Therefore, I think back-to-work and back-to-school testing will likely be a major growth area for COVID-19 testing going forward. It is crucial to continue combating this pandemic with contact tracing and monitoring. We are observing large corporations that wish to test their employees regularly, sometimes up to three times a week, and these solutions we’ve built make it tremendously efficient for them to do so. Employees can simply approach a test station, scan their ID, swab themselves, and be on their way in less than a minute each. We are excited to assist with back-to-work and back-to-school initiatives, aiding both teachers and students. Perhaps I can turn it over to Ming if he wishes to add anything.

Additionally, we do offer IgG and IgM serology tests for labs. We continue to expand our NGS capabilities for research organizations and pharmaceuticals. Hence, we see numerous opportunities arising from the pandemic, which can help combat it. Of course, we will continue adding to our capabilities and keep Wall Street updated on our new initiatives.

Fantastic. You guys answered a lot of my questions on COVID, but maybe one follow-up on the routine testing. It sounds like there is variability in how different organizations and institutions are approaching it. Is that the case? Are there significant variations across different routine testing strategies? Is there – are there recommendations in terms of what’s ideal? If you could walk through that, I would appreciate it.

Yes, it’s a great question. There are some general practice guidelines, but we see a wide range of approaches. Some companies want to test every day, while others prefer three times a week or once a week. So there is variability there. One of the key differentiators for Fulgent is that we offer one of the few FDA-approved at-home tests. Not only do we test employees at their workplaces, but we also send tests home to employees working remotely or those who previously tested positive until they achieve a negative result. Nevertheless, I believe the country is still trying to determine the best testing protocols, including test frequency and administration. Most importantly, we’ve developed multiple platforms and solutions to facilitate these varying needs easily.

Additionally, we work with our partners. We are among a few companies that provide a fully end-to-end at-home test collection and processing, along with result transmission. We collaborate with partners who are individually certified with their at-home test kits, and both entities partner with us; we provide the back-end service while they manage the front-end collection. This collaboration exemplifies how we file EUA applications together, collect samples, and process them effectively.

Fantastic. It is great to hear about the capacity expansion considering the significant demand for testing. I was wondering – I don’t know if it’s premature, but how do you see the sustainability of COVID-19 testing beyond this year? As you expand capacity, are there thoughts about re-deploying those capacities for other applications in the future? Just curious about your outlook.

Sung Ji, that's a great question. Technology has enabled us to pursue various opportunities. We are prepared for the current processing of COVID-19 tests. As infection rates decline, we can establish a similar footing to some of the other large labs. We currently do not face capacity issues and can readily expand our capabilities. Importantly, we do not single-source any vendor within our supply chain, nor do we have material shortages. In fact, the majority of reagents are produced in-house. Additionally, we are scaling COVID-19 testing and preparing for potential outbreaks of other infectious diseases. We must be ready to respond to new challenges, and we have the capability to file new EUA requests as they arise. Furthermore, our technology enables us to reduce costs effectively, which is crucial for securing contracts with insurers. Compared to competitors that may invest hundreds of millions with less favorable outcomes, our technology has successfully built trust within the insurance industry. We are focused on generating returns for our shareholders while delivering quality results.

Fantastic. Thank you so much.

Your next question comes from the line of Steven Mah with Piper Sandler. Your line is now open.

Okay. Thank you. Hey guys, congratulations on the quarter. Good stuff there.

Thank you, Steven.

Okay. So, maybe let me start with a non-COVID-19 question. It seems your core genetic testing business is rebounding to normal levels. Have there been any disruptions in your genetic tests given the rush to get COVID-19 results out? I mean, I know your testing is complex, and you guys have hired many employees. Any impact on the core genetic testing business?

Yes, this is a good question. The answer is no. We have maintained our key performance metrics for our traditional genetic business without issues. We have successfully managed our production lines for both COVID-19 and traditional genetic tests. Our turnaround times for traditional business remain as important as those for COVID-19 testing, which we regard highly.

No, I think Ming accurately captured it. The short answer is no, there have been no disruptions. The processes for both testing types are quite different, and we've successfully automated many of the COVID-19 testing processes. Still, we've maintained our turnaround times and seen a rebound in our core business driven by a combination of pent-up demand and bringing on new customers and effective execution by our teams. We completed 180,000 tests in Q2 with almost no setbacks, and arguably, we have one of the best turnaround times for COVID-19 tests in the United States. I am incredibly proud of our laboratory operations.

That’s great to hear. Moving on to capacity, you noted that you're acquiring a new building, with capacity expansion that could reach 60,000 tests per day. How long should we anticipate until this new building is operational? I know it requires CLIA lab certification; could you share more about the timing?

Yes, I’ll let Paul address the exact timeline, but the CLIA licensing process has been expedited for COVID-19 laboratories. It now typically takes only a matter of days if you're already performing COVID-19 testing under an EUA. I applaud that initiative for streamlining the process. Regarding the El Monte facility, I’ll let Paul take over now.

Starting from the Temple City location, that location has a capacity of up to 30,000 tests per day. With the new El Monte building, we anticipate reaching a capacity of 60,000 tests per day; however, that will not occur immediately. By the end of this year, we believe we can calibrate that lab for processing up to 30,000 tests per day. As we grow and expand, we will increase that capacity to 60,000 tests.

I see. That's helpful. Regarding the test breakdown, I don’t know if you can share this, but could you provide a breakdown of the COVID-19 test mix: RT-PCR versus at-home versus NGS?

Sure. To provide a breakdown, out of the $17.3 million in revenues for the quarter, approximately 60% was attributed to COVID-19 testing, with around 40% being non-COVID testing. Within the COVID-19 revenue, the vast majority was related to RT-PCR tests; however, the demand for our at-home test, Picture, is soaring. We anticipate the growth for that platform may even outpace growth for traditional RT-PCR. The NGS business, while it generates some revenue, constitutes a very small portion at this stage, though we expect it to grow as we enhance our capabilities to pharmaceutical organizations.

That's helpful. As for your outlook, I believe you mentioned that you have contracts for 1.3 million tests for 2020; is that correct?

What we anticipate is over 1.3 million tests for the year, translating into more than $120 million in total revenues for the company, based on projected demand.

I see. Okay. Regarding the contracts you are signing with schools and healthcare facilities, how long are these contracts typically for?

The duration of contracts varies widely, ranging from three months to 18 months. There is considerable variability in that regard.

That makes sense. Those are all the questions I have. Thank you for your time, and congratulations again.

Thanks, Steven.

We have no further questions at this time. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day. You may disconnect.