Fulgent Genetics, Inc. (FLGT) Q3 2021 Earnings Call Transcript

Good afternoon and welcome to the Fulgent Genetics, third quarter 2021 financial results conference call. On the call today are Ming Hsieh, Chief Executive Officer, Paul Kim, Chief Financial Officer, Dr. Larry Weiss, Chief Medical 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 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 results, including the Company's actual future results may be materially different. Please review the more detailed discussions related to these forward-looking statements, including the discussions of some risk factors that may cause actual 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-K for the year ended December 31st, 2020, which is available in 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 U.S. 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 2021 for more information, including a description of how the Company calculates non-GAAP income and income per share, and a reconciliation of these financial measures to income and income per share, the most directly comparable GAAP measures. With that, I'd now like to turn the call over to Ming.

Thank you for joining our call today to discuss our third quarter 2021 results. We had a very strong third quarter, with our core business maintaining momentum despite COVID infections. We saw a meaningful uptick in our COVID testing during the quarter. I will cover some highlights from the third quarter before turning the call over to our Chief Commercial Officer, Brandon Perthuis, to discuss the products and the go-to-market updates. Paul Kim will discuss the financial results and outlook in detail. In our third quarter results: Revenue totaled $228 million, up 124% compared to the third quarter of 2020 and an increase of 48% sequentially. We delivered approximately 2.2 million tests in the quarter, more than double the volume of our third quarter last year. Both our core business and COVID business outperformed the guidance we set last quarter. Our core business grew almost 300% year-over-year to over $40 million, due to strength across key areas. We also saw a significant increase in revenue from our contracts with the CDC. We continued to drive strong profitability, generating $3.93 per share in GAAP EPS and $152 million in operating cash flow. We were pleased to achieve results that exceeded our expectations. Our business has benefitted from spikes in COVID testing, and we have seen strength in our core businesses as we execute our strategy to expand in key areas. A key highlight for us was the initial traction we are seeing from our acquisition of CSI, where we are beginning to expand our sales team. We also continued to make progress on our Helio Liver test, which has shown promising data. Furthermore, we are excited about our partnership with another organization. Overall, we are pleased with the ongoing progress we are making and remain optimistic about our growth opportunities, especially in the context of the therapeutic treatments that may become available in the future.

Thanks, Ming. We continue to make significant progress with our core business, our Helio Liver liquid biopsy test, integrating the CSI acquisition, and responding to the ongoing challenges posed by the COVID-19 pandemic. The third quarter resulted in $228 million in revenue, representing a 124% year-over-year increase. While much of this revenue was driven by COVID-19 testing, our core business also showed strong growth at over $40 million, which is approximately a 300% increase year-over-year. Our focus remains on expanding our services in oncology. One of our key products, Helio Liver, is designed for early detection of hepatocellular carcinoma and leverages next-generation sequencing technology to significantly enhance detection capabilities compared to traditional ultrasound methods. Helio Liver is scheduled to launch this year, and we are committed to keeping the market updated on its developments. Additionally, our acquisition of CSI has been successfully integrated, and we are focused on expanding operations nationally while retaining nearly 100% of employees and clients. Our sales force is expanding aggressively to drive growth, and we are also pleased to announce our partnership that enhances our capabilities in proteomics. Lastly, we witnessed a rebound in COVID-19 testing due to the Delta variant and are pleased with our third-quarter results and the future prospects of our business as we explore ongoing strategic initiatives.

Thank you, Brandon. Revenue in the third quarter totaled $228 million, an increase of 124% compared to the third quarter of 2020, exceeding our guidance of $125 million to $150 million. Billable tests in the quarter totaled almost 2.2 million, more than double the volume of Q3 last year. Approximately $180 million came from COVID PCR testing, which exceeded guidance by about $100 million and grew 105% year-over-year, while our core business brought in around $40 million, exceeding our guidance of $32 million and growing approximately 300% year-over-year. Our core revenue includes contributions from our NGS business, our Chinese joint venture, and CSI. We expect core NGS revenues to total approximately $95 million, consistent with previous guidance. For COVID NGS revenue from the CDC, we are raising our guidance to $20 million from $15 million due to strength seen in this program in Q3. Altogether, we expect total revenues to be approximately $930 million for the year, up from our previous guidance of $800 million. While much of this increase comes from COVID-related testing, we remain confident in our core business growing massively. Our focus is to continue leveraging operational growth and efficiency to drive profitability while evaluating strategic investments and M&A opportunities.

Hey guys, thanks for taking my questions. Congrats on a really nice quarter here. A few things: I think Ming highlighted in his prepared comments progress on commercial reimbursement across the portfolio. I guess maybe two points on that. Can you quantify the portion of revenue that came from third-party reimbursement and, more generally, how do you measure continued strength in gaining expanded reimbursement?

In general, our insurance contracts cover about 160 million lives. Most of our revenue stems from COVID reimbursement connected to our 9-year assurance contracts. But to elaborate, we are actively working to expand our coverage and move towards aligning traditional Fulgent tests with CSI contracts.

While we are pleased with the current coverage level, our efforts to secure additional managed care contracts are ongoing. We continue to build relationships with smaller regional networks while ensuring that coverage continues to expand, which is a never-ending commitment.

Regarding sales force expansion for CSI and the oncology franchise, your comments suggested about 15 reps by the end of the year. How do you see the appropriate sizing for the clinical oncology sales force in the next 18 to 24 months?

We anticipate growing our sales team significantly as we expand our market presence from the Southeast region to a national level. This growth is driven by the large market potential we see and the need for specialized teams to engage with different stakeholders in those markets. Specifically, we expect our sales representation to grow beyond the current count of 15 as we continue to establish partnerships and contracts.

Thank you for your questions, Kevin. Our balance sheet is strong, and while we are considering buybacks as an option, our priority is to invest in our business and M&A strategy to drive future growth. We are committed to incrementally increasing our core revenues and expanding operational capacities across the board.

Again, thank you for joining the conference. We are very excited about the opportunities ahead, and we are confident in our technology and position to become a major player in this ever-evolving market. We look forward to updating you in the next quarter. Thank you.

And thank you for joining us. This concludes today's call. You may now disconnect.