Earnings Call Transcript - FLGT Q1 2021

Operator, Operator

Good day, and welcome to the First Quarter 2021 Fulgent Genetics Earnings Call. At this time, I would like to turn the conference over to Nicole Borsje with Investor Relations. Please go ahead.

Nicole Borsje, Investor Relations

Great. Thanks. Good afternoon, and welcome to Fulgent Genetics' first quarter 2021 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, 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. Listener 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 than 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 SEC, including the previously filed 10-K for the year ended December 31, 2020, which is available on the company's IR 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 statements for the first quarter of 2021 for more information, including the description of how the company calculates non-GAAP income 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.

Ming Hsieh, CEO

Thank you, Nicole. Good afternoon, and thank you for joining our call today to discuss our first quarter 2021 results. I will provide some opening remarks before handing it over to our Chief Commercial Officer, Brandon Perthuis, to provide updates on our commercial success. And finally, Paul will discuss our financial results and outlook in detail. The first quarter marks a meaningful milestone in our fight against COVID-19. It has been just over a year since lockdown began, and our lives were disrupted in many ways by the pandemic. While it appears that the vaccine rollout is progressing and lives slowly returning to a state of normalcy, our thoughts remain with those who have been impacted by this pandemic. Our team has worked tirelessly over the last 12 months to provide testing solutions to customers across the country. While our COVID-19 testing business has sustained demand, we are turning our focus on how we can support recovery from the concerns going forward and drive growth across our core Next-Generation Sequencing (NGS) business. I will elaborate on these focus areas in a moment, but first, I will touch on the highlights from the first quarter. We had a record quarter start for the year with Q1 revenue totaling $359 million, more than 46 times the revenue in Q1 last year and an increase of almost 22% compared to the first quarter. We delivered approximately 3.8 million tests in the quarter, an increase of roughly 19% compared to the first quarter and almost 290 times the volume of Q1 last year. What's most exciting is the growth in demand for our NGS revenue, which exceeded our expectations and grew 115% year-over-year in the first quarter. We will continue to drive substantial leverage, generating more than $6.59 per share in non-GAAP income in the first quarter and almost $222 million in free cash flow. Our team has continued to fire on all cylinders with great execution from our LAP3 operations to our sales organization. The growth we accomplished in the last year wouldn't have been possible without our support and dedication. We are looking forward to growing our team and expanding our momentum in the year ahead. We have built a genetic testing business on a strong technology foundation that is scalable into new areas with minimal overhead and investment, and we believe this positions us extremely well for substantial growth and allows us to become a leader in the broad genomic diagnostic market. On that note, one of the recent developments I'm most excited about is the announcement of Dr. Larry Weiss as our new Chief Medical Officer. Dr. Weiss has an extensive background and expertise in pathology and molecular science and has a successful track record in healthcare business for sustainability and scale. Dr. Weiss is joining us from NeoGenomics, where he oversaw the company's medical and R&D teams and helped to expand their business during his tenure. We are very excited about Dr. Weiss's commitment to Fulgent and look forward to expanding our presence in the molecular diagnostic market under his expert oversight. We see a number of opportunities in oncology testing, which we have just begun to scratch the surface. We believe that with our scalable technology platform and a track record for execution, we are extremely well positioned to capture the large opportunities in this area. Moving on to our COVID-19 testing business, while our RT-PCR-based testing for COVID-19 has continued to drive sustainable testing volume and cash flow for our business, we are focusing on leveraging our success in RT-PCR testing into other areas for COVID-19 and the research. In particular, we have been working on various large-scale opportunities for engine-based testing for COVID-19, evidenced by the large contract we announced with the CDC in March. Fulgent has demonstrated success in this contract. It is clear we were one of the top laboratories awarded the value and duration of the contract compared to other labs that were also selected by the CDC for this contract. Brandon will elaborate on this win in more detail, but we believe this contract work represents a culmination of our efforts in both NGS testing and COVID-19 expertise. We see additional opportunities of this nature that we are being considered for on an ongoing basis. We also have continued to support vaccine rollout with our vaccine management platform as well as our community software platform. As we look ahead, we expect to continue investing in our technology platform, our team, and our testing offerings to expand our reach into new markets and geographic areas. In particular, we intend to expand our investment in our China JV in the coming months. We have had a presence in China through our JV venture since 2017 in the genetic rare disease market and we see a significant opportunity with additional investment to meaningfully grow our presence in this large and growing genetic diagnostic market. Our operations on the ground in China leverage our same technology platform, extensive test menu, and the efficient lab management system as our infrastructure in the U.S. We are also continuing to evaluate M&A opportunities that will be a natural expansion for our existing business to fuel our expansion and remain very optimistic about our future opportunities in NGS testing and other areas that we are just starting to explore. We have proved our ability to readily scale up our business with our COVID-19 testing initiatives, and we see opportunities that will underpin our momentum more broadly going forward. We look forward to discussing our progress in the coming quarters. With that, I would like to turn over the call to Brandon to dive deeper into the customer dynamics we saw in this quarter.

Brandon Perthuis, CRO

Thanks, Ming. We are proud of what we accomplished in the first quarter, setting numerous new financial records for our company, and we are equally proud of our company's efforts to fight the pandemic. In the first quarter, we processed over 3 million RT-PCR tests, roughly 284 times the total volume we processed at the same time in the previous quarter of last year. Since the first signs of the virus, testing has been one of the best tools in the fight against SARS-CoV-2. With the number of new cases down, we like to think the Fulgent lab team's relentless efforts to scale, meet turnaround time, and deliver quality results played a small but meaningful role in our country's improvement. That said, cases appear to have plateaued at a high level, and some states are still dealing with surges as we continue to deploy our testing resources across the United States. While we demonstrated very strong performance in COVID-19 testing in the first quarter, we also saw a record in our next-generation sequencing business. Our NGS volume grew 185% year-over-year from 13,000 to 38,000 tests, representing sales of $16.7 million compared to $7.8 million in the first quarter of last year, an increase of 115%. This growth was driven by our clients beginning to return to a more normal run rate, continued traction in our biopharma business, and our new strategic partnerships with commercial organizations. The investments we made in R&D to launch new tests in new diseases and markets have continued to create opportunities for our company. Meaning most of the growth has been outside our traditional pediatric rare disease menu and includes adult neurogenetics, hereditary cancer, hereditary cardiovascular genetics, reproductive health, and sequencing as a service. With a number of new COVID-19 cases decreasing, we are seeing a bit of a paradigm shift. As people begin to return to the office, travel, attend events, et cetera, we are seeing testing shift to return to normalcy testing. We believe our history of delivering gold standard RT-PCR testing at scale with rapid turnaround time positions us perfectly to address this demand. Many of the screening programs are not allowing less sensitive antigen tests or rapid molecular tests to be used as the evidence shows sensitivity in asymptomatic populations is less than RT-PCR. Several of our larger testing operations now include schools and employers. We have talked about New York City schools and Las Vegas schools on previous calls. We continue to screen students there and have been successful in detecting many positives, enabling effective isolation to minimize spread. We have also seen our picture at-home test play a meaningful role as we are able to send families kits to their homes for continued test monitoring. Regarding New York City specifically, we are now processing thousands of students per day across many hundreds of schools, and plans call for even more testing in the future as additional students return to in-person learning. In mid-March, it was announced as part of President Biden's national strategy for the COVID-19 response and pandemic preparedness, the U.S. Department of Health and Human Services will invest $10 billion from the American Rescue Plan to ramp up testing to help schools reopen. It is estimated that over 1 million tests per day will be needed with this new program. At this time, we are actively onboarding new schools and have additional schools in our sales pipeline as we await to hear how the new HHS National School Testing program will be rolled out. During our fourth-quarter earnings call, we mentioned next-generation sequencing entering the spotlight of this pandemic due to its ability to identify strains and mutations and screen for potential new mutations, and that we hit a perfect intersection of Fulgent's core competencies, and we were primed and ready to take on massive NGS testing volume. Along these lines in the first quarter, we had the privilege to announce a monumental new contract with the CDC for COVID-19 genomic studies to track and identify new variants. We were awarded up to $47 million in CDC funding to support the national COVID-19 surveillance program for SARS-CoV-2. Such large-scale viral genomic surveys have played an important role to provide essential baseline information for national and state-level surveillance, defining important changes in transmission, identifying unusual or emerging variants, and ultimately, improving public health responses and decision-making with better laboratory data. Before the award in early February, we had already initiated a pilot surveillance program, partnering with public health laboratories in California. Important discoveries, such as the two emerging West Coast variants B.1.426 and B.1.429, were also confirmed in our pilot studies. These two variants were quickly identified as variants of concern by the CDC. Our pilot study set a good baseline for the surveillance in the West Coast and helped the public health laboratories overcome issues with the complexity of sequencing and bioinformatic workflows and limited access to timely remnant samples for sequencing and analysis. With the CDC partnership, we have successfully identified the first B.1.315 in Santa Clara, the first P.1 in San Bernardino, the outbreak of P.1 in Colorado, and many more. The genomic data has proven its value to prioritize contact tracing efforts so that effective measures can be deployed to control transmission. Moreover, this enables epidemiologists to trace sources of exposure, whether through travel, workplace, or other community transmissions. At this point, we are sequencing thousands of positives per week from our lab and collaborator labs across the United States. In mid-April, it was announced that the Biden administration would be dedicating $1.7 billion in funding from the American Rescue Plan to fight COVID-19 variants, helping the CDC and Governors monitor, track, and defeat emerging variants. We look forward to fulfilling our part of the existing contract with the CDC and any additional opportunities we can assist with. Turning to capacity, we continue to increase our testing capacity with very little investment. At this point, by continuing to improve workflows and efficiencies between our two laboratory locations, we can handle north of 0.25 million tests per day. Considering the size of some of the return to normalcy opportunities such as the National K-8 program, we think our capacity, turnaround time, and mobile applications will allow Fulgent to compete at a high level for these contracts. During the first quarter, Fulgent obtained authorization from the state of California to aid in the distribution of vaccines. Starting in March, we deployed our mobile vaccination fleet and have since serviced over 40 locations, primarily in underrepresented communities and have administered tens of thousands of doses in partnership with Los Angeles County. We are using the newly launched Fulgent vaccine management platform to allow patients to find a location, schedule their appointment, receive reminders, and track their vaccination. This platform is fully integrated with our test management system, allowing existing clients to expand their present operations and new clients to take advantage of the full suite of services from the program outset. Combined with the rapid deployability of our mobile fleet, Fulgent-managed vaccination efforts usually see a turnaround of one week from site request to execution. While we continue to run one of the largest COVID-19 operations in the United States, we also continue to invest in new areas of genomics. As Ming mentioned, we are very excited to have Dr. Larry Weiss join the Fulgent team. Dr. Weiss is a renowned pathologist and will help lead our oncology product development and strategy, including strategic partnerships. We believe that combining Dr. Weiss's expertise with our capabilities and technology platform, we can make significant progress in areas such as liquid biopsy, minimal residual disease, companion diagnostics, and traditional cancer testing, such as FISH, flow cytometry, and immunohistochemistry. Over the last couple of years, the Fulgent test menu has exploded to include over 18,000 genetic tests, all of which have been germline testing. With Dr. Weiss on board, we intend to expand our somatic test menu quickly. A question we often receive is how does Fulgent plan to invest in the business going forward? It's a fairly straightforward answer. We are believers in our market, and we believe we can continue to be a disruptive force. With our scale, cost structure, test menu, and underlying technology platform, we believe we can continue to launch new services in new markets at record pace, investing in continued organic growth. Since the founding of this company, we have built everything organically, the hard way, as we like to say. By doing so, we've been able to build a lab with systems that are seamlessly integrated and not a series of acquired platforms stitched together or relying on third parties for technology.

Paul Kim, CFO

Thanks, Brandon. We again achieved record results in the first quarter with revenues totaling $359 million, an increase of more than 4,500% compared to the first quarter of 2020. Billable tests in the quarter totaled almost 3.8 million, growing almost 290 times the volume of Q1 last year. The vast majority of this volume was from our business related to COVID-19. As the country began to reopen and people have begun returning to a more regular way of life, we have seen ongoing momentum in our traditional genetic testing business. Our NGS revenues in Q1 were up 115% year-over-year and 39% sequentially from Q4. Overall, we're very pleased with our Q1 results, which saw ongoing momentum with RT-PCR testing for COVID-19, complemented by our NGS testing for both COVID-19 and our core genetic testing business. Our ASP in the first quarter was $95, slightly higher than the $93 we saw in the fourth quarter. While our ASP has largely remained stable over the last few quarters, we observed a modest change in the mix of NGS tests we saw in this quarter. Cost per test in the quarter was $20, slightly higher than in Q4, also due to the increased mix of NGS testing. Gross margins were comparable with the fourth quarter at 79.4%. Turning over to operating expenses, total GAAP operating expenses were $18.4 million in the first quarter, up from $17.3 million in the fourth quarter. Non-GAAP operating expenses totaled $16.1 million, up from $14.8 million last quarter. Non-GAAP operating margin declined by 252 basis points from the fourth quarter to 75.1%. As Ming discussed, we continue to invest in our business, particularly in headcount as we look to position ourselves for sustainable growth. Adjusted EBITDA in the first quarter was $271.9 million compared to a negative $506,000 in the first quarter of 2020. On a non-GAAP basis and excluding equity-based compensation, income in the quarter was $202.9 million or $6.59 per share based on 30.8 million weighted average diluted shares outstanding. This takes into account the tax effect for stock-based compensation in the quarter. Turning over to the balance sheet, we ended the first quarter with $697.4 million in cash, cash equivalents, and marketable securities. We generated over $233 million of cash from operations in the quarter fueling our cash balance. We did not take any action on our equity issuance programs in place during the quarter to minimize dilution to our shareholder base. On the other side of the balance sheet, contract liabilities stood at $14 million. Now moving on to outlook. We remain very excited about our positioning, and we see an ongoing opportunity to extend our leadership in COVID-19 testing while our traditional genetic testing business should continue to expand. Our revenue guidance for the two primary segments: RT-PCR testing for COVID-19 and NGS testing, includes NGS testing for COVID as well as our core genetic testing business. We feel confident in our ability to capture more market share in the RT-PCR market while being aware of the impact of the changing landscape in RT-PCR, including vaccine administration, asymptomatic versus symptomatic testing, and the timing and size of testing policies by various organizations with reopening. Conversely, we see tremendous growth in our expanded capabilities as a whole, demonstrated by our diverse menu, operating experience, traction with reimbursement, reputation with customers, and quality of service, to name a few. We see durability in our NGS business and additional opportunities for further growth. As such, we're raising our revenue guidance from NGS testing from $70 million previously to over $100 million in 2021. This represents organic growth of over 200% in our NGS business or more than tripling compared to pre-COVID levels of $32.2 million in revenues in 2019, and growth of over 170% compared to our 2020 estimates. Based on our raised outlook for NGS revenues, we're raising our full-year revenue guidance to $830 million from $800 million previously. We expect our test volume for 2021 to be between 8.5 million and 9 million, representing a growth of 93% year-over-year. In the second quarter of 2021, we expect revenues to be approximately $200 million. From a profitability standpoint, we continue to expect ongoing leverage in our business, which flows down to the bottom line and drives cash flow generation. We continue to rely on our foundational technology to operate our business, which is producing gross margins of about 80% and operating margins above 70%. Even with aggressive hiring and investments we're making in our business, we anticipate that growth and operating margins will remain extremely strong. As such, for full year 2021, utilizing a 27% tax rate and our share count of 31 million, we expect net income of approximately $380 million or $12.50 per share for our shareholders, excluding stock-based compensation. Looking at the balance sheet, this quarter has once again proven the viability of our business model and the power of our technology platform, given our ability to drive hundreds of millions of dollars in cash flow in a single quarter. We remain well on our path to having $1 billion in cash, cash equivalents, and marketable securities on our balance sheet, excluding any potential M&A transactions, which we continue to evaluate on a regular basis. Thank you for joining our call today. Operator, you can now open it up for questions.

Operator, Operator

Our first question comes from Steven Mah.

Poon Mah, Analyst

Congrats on the quarter.

Paul Kim, CFO

Thank you, Steven.

Poon Mah, Analyst

Okay. First question, on the NGS business, how much was from the core genetic testing business? And how much was from COVID surveillance? And then on the new revenue guide in NGS, could you help us bridge the $70 million to the $100 million new guide on the NGS side?

Paul Kim, CFO

Sure. So, Steven, very little came from the CDC, NGS, less than $1 million. The bulk of the NGS business during Q1 came from our traditional genetic testing. We're actually very excited about the prospects of the CDC, and we see this as a multi-year opportunity. And in terms of the guide, the raise from the $70 million to $100 million, we anticipate that a chunk of that will be the CDC. But the primary portion is just the growth in our ability to capture share and be more successful in posting higher NGS revenues.

Poon Mah, Analyst

Okay. Got it. All right. Regarding the COVID-19 surveillance opportunity, you mentioned the $1.7 billion potential related to the American Rescue Plan. Can you provide insight into how that might evolve over the year? I understand Biden is establishing six centers of excellence for genetic epidemiology studies. Can you share your thoughts on how that $1.7 billion might be divided between those centers and standout services like Fulgent?

Brandon Perthuis, CRO

Steven, it's Brandon. I think it's to be determined. I think what we can say is the initial grant that we received from the CDC is much larger than any other grants combined to date, which was a real sign of faith in Fulgent's abilities and capabilities. And so far, we performed at a very high level for the CDC. We've been doing this for a few weeks now. The collaboration with the CDC has been fantastic. We're turning out results quickly, a lot of NGS results, making new discoveries. I think the working relationship couldn't be stronger. So hopefully, that bodes well for Fulgent in the future as these new programs get rolled out. And hopefully, we can continue to be included in them.

Paul Kim, CFO

Steven, just one other thing. The NGS revenues for Q1 were a little less than $16 million and less than $1 million of that came from the CDC.

Poon Mah, Analyst

Okay. Got it. And then the balance of the traditional genetic testing?

Paul Kim, CFO

That's right. And that actually surpassed our expectations from what we thought that we could achieve when we initially laid out our $70 million guidance, which gives us even more confidence in our ability to achieve more than $100 million this early in the year.

Poon Mah, Analyst

Okay. Got it. And then maybe a follow-up on the core genetic testing business. So what drove the strength? I know you guys mentioned increasing the menu and increasing adoption. But has there been any progress on moving into network with the large payers?

Brandon Perthuis, CRO

Brandon again. Not measurably, Steven. We're having those conversations. We are now quite visible to those payers. They're seeing the claims from our COVID-19 claims. So we're having those conversations more so than ever, but no meaningful new contracts, so to speak, national contracts, right? So we haven't become in network with United or Cigna or something like that. Had we done that, we certainly would have updated the investment community. So no, the growth is not coming from penetrating the direct pay market. It's coming from execution on our traditional business, taking advantage of our industry-leading cost structure, being more aggressive on our pricing. Some return to normalcy, right? No doubt about that. And some of these partnerships we've established have performed well for us. We continue to onboard clients who are taking advantage of our expanded test menu. And again, at these discounted pricing, capitalizing on our cost structure.

Paul Kim, CFO

We actually see that as upside, Steven, meaning that should we land even one of those contracts, we'll probably have to adjust our NGS guidance again. And the same thing for the COVID as well. So since we're on the topic of guidance, I'd like to make a few commentaries about how we established the guidance, the original $800 million, the assumptions that went into it and why we're upping the guidance for our base business now after the first quarter. So when we initially formed the guidance, we did take into account a number of things, including aggressive vaccination timelines, which were happening, a drop-off in positivity rates; we didn't think that it would be this slow in California; a significant shift from symptomatic to asymptomatic testing. All those things we incorporated were conservative when we initially laid out the guidance and have taken hold, and we're experiencing it today. But we're not changing our guidance for the COVID because we have plenty of conservatism built in there. We continue to capture market share, and should we land some of these big opportunities that Brandon has mentioned, particularly for the schools, the COVID revenues, and the RT-PCR revenues might have more longevity and upside to them. Now turning to the NGS portion of the business, we made a lot of comments in the previous quarters about how the strength of the company and the volumes that we're doing, the quality, and the reputation would aid our base business. And that's exactly what's happening. We've experienced throughout 2020 as well as in early 2021, expanded capabilities, honing in on operational protocol, and validation from the CDC at lower costs per test. Our cost structure is probably one of the lowest in the industry, whether you're looking at the RT-PCR or traditional NGS.

Poon Mah, Analyst

Okay. Great. And maybe one last quick question. How much vaccination revenue from your software-as-a-service business was in Q1? And how much of the vaccine revenues and then your guidance?

Paul Kim, CFO

Yes. So if we did this call over a year ago, we probably would have called that out, but because the numbers are just getting so large at the company, it's an immaterial amount, but it's not an insignificant amount. Meaning that we continue to record those revenues, and it is a driver for our business, not in a meaningful kind of way, but as they gain more traction, we might call those numbers out separately.

Operator, Operator

Our next question comes from Kevin DeGeeter.

Susan Chor, Analyst

This is Susan calling in for Kevin DeGeeter. I have a few questions. So it's no secret we follow your California testing volume. And we've noticed a change in the competitive landscape. Can you comment on market share trends that you're seeing? And what other competitors might be offering that would make them more attractive? And then I have a couple of other questions.

Brandon Perthuis, CRO

Certainly, Susan. So we look at the California market for Fulgent; it was largely driven by drive-thru operations. A lot of the patients that were tested believed that they may have the virus. It's no secret that California has done a good job decreasing the amount of cases on the West Coast. As the number of cases come down, the number of drive-thru tests that we were doing is coming down. So what we're seeing is as the number of cases come down, there's a sort of inverse reaction, which is more back-to-work, back-to-school. For whatever reason, we're just particularly strong in those areas outside California. So that's not to say we're not focused on driving more return-to-normalcy type opportunities on the West Coast; it's just kind of the nature of our business and sort of where our business fell in place. We're observing many of these changes as we mentioned a paradigm shift. We're really seeing more return to normalcy type testing, and we just have a large presence in that type of testing across the United States. It's not so centered in the West Coast as our drive-thru testing business was.

Susan Chor, Analyst

Okay, great. Glad that I was not totally off. So my follow-up is, I understand California drive-thru testing, where in the U.S. do you see your market share growing in this back-to-normal testing? You say it's like New York, just kind of giving the geography?

Brandon Perthuis, CRO

At this point, we do business in every single state, including Alaska and Hawaii, I know Alaska for sure. So we're national. We've had to demonstrate that for some of these large contracts that we've been on. They want to see someone who can handle a national business, a national customer base. So we're in every state. It's hard to single out states, but New York has been incredibly important for us, not only from a revenue perspective but from a credibility perspective. The largest school district in the United States partners with Fulgent to run their testing up there. We've done so effectively, and we've just performed spectacularly. Their efforts and our efforts have been really successful in New York. We also have a presence in the Midwest, Southeast, and South. I mean, we have large customers in many states. There's not a lot of geographical concentration outside of New York; that's probably one of our larger geographies.

Susan Chor, Analyst

Just one more question. So the CDC contract for NGS is really big. Do you guys expect to get any other surveillance NGS-type contracts, maybe in China or just private companies looking to do research?

Ming Hsieh, CEO

Well, Susan, this pandemic is global. Definitely, we are getting calls from all over the place to see whether we can play a role in some of those outbreaks. We are working on various opportunities, and we'll update you once we land the contract.

Brandon Perthuis, CRO

Yes. Just kind of teeing back on your last question. Some of the surveillance programs we've implemented, some of these large employers we have, very large biotech companies and logical districts, we've detected hundreds of positives that were otherwise coming to work or going to school either mildly ill or perhaps asymptomatic. We believe these programs will work. We're able to identify these hundreds of people, get them isolated, test them while they're home, and when they're better, bring them back into the workforce or school. We think isolating these positives, asymptomatically or early symptomatic, will be really powerful in controlling the spread.

Operator, Operator

Our next question will come from Erin Wright.

Katie Tryhane, Analyst

This is Katie Tryhane on for Erin. I just have a few questions for you here. How are you thinking about the cadence of COVID testing over the balance of the year, particularly as you have some of these back-to-school, back to life type of testing opportunities?

Brandon Perthuis, CRO

Well, Katie, we hope the number of cases continue to come down. This country needs the number of cases to continue to come down. We mentioned cases appear to have plateaued at a high level, and certain states are still struggling. Certainly, the globe is still struggling. But we would like to see the number of cases decrease. Testing will play a significant role in all of that. The national school program is certainly unprecedented. It’s estimated that over 1 million tests per day will be necessary to screen K-8 grades. Therefore, we see the cadence picking up significantly from employers, travel, and other organizations that will need to test to ensure a safe return to full normalcy.

Paul Kim, CFO

Katie, this is Paul. You talked about the cadence. Like I indicated in the commentary about the guidance when we initially laid out our guidance, we took into account pretty conservative assumptions about the impact of the vaccine and the positivity rates. If you look at our COVID and RT-PCR revenues, they are anticipated to decrease, and that has been baked in. I think if you look at the diversification of the customers and the strength of where the RT-PCR revenues are coming from, we have less customer concentration than ever. I mean, L.A. County is one customer that continues to be prominent; however, as Brandon mentioned, we have big customers in New York, Colorado, Ohio, Florida, and Wisconsin. Based on our positioning, we have conservative assumptions built into the RT-PCR estimates.

Katie Tryhane, Analyst

Okay. Got it. Regarding the sales force commentary you mentioned, what does the timeline look like for its development? How do you envision this unfolding?

Brandon Perthuis, CRO

It's happening in real time. To build a national sales force, it doesn't happen overnight, right? So we don't have a hard deadline, and we want to have the positions filled. But it's occurring organically now, as we're attracting talent interested in joining Fulgent. We're truly happy to have Dr. Weiss on board; I think he's an amazing asset. He'll be helpful in building out the commercial side too. So it's happening in real time. We positioned our company, our capabilities, and our go-to-market strategy in a manner that will allow us to recruit elite salespeople nationally. I think we'll focus primarily on the U.S. initially, as we consider international growth.

Ming Hsieh, CEO

Katie, it's not that we don't have a sales force; we have a very effective sales force. However, we are continuing to add talented sales personnel to broaden our coverage and effectively introduce new tests and platforms.

Operator, Operator

And we have no additional questions at this time.

Ming Hsieh, CEO

All right. Thank you.

Nicole Borsje, Investor Relations

Great. Thanks, everyone, for joining us on our call today.

Brandon Perthuis, CRO

Thank you. Bye, bye.

Operator, Operator

And this concludes today's call. Thank you all for your participation. You may now disconnect.