Earnings Call Transcript - FLGT Q3 2020

Operator, Operator

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 speakers’ presentation, there will be a question and answer session. Please be advised that today’s conference is being recorded on the 9th of November, 2020. I would now like to hand the conference over to your first speaker for today, Head of Investor Relations, Ms. Nicole Borsje.

Nicole Borsje, Head of Investor Relations

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, 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 the 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 more detailed discussions related to these forward-looking statements, including the 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 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. 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 go-to-market strategy. And finally, Paul will discuss our financial results and the outlook in detail. The COVID-19 pandemic has continued to challenge both our health and our way of life this year. At Fulgent, we took early action to leverage our technology platform to build out the comprehensive positive 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. We’ll continue to do our part at Fulgent to help get testing solutions to individuals and organizations that need them so that business, school, sporting events, travel and social engagements 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 have really proven Fulgent Genetics is as a company and the results we discuss today 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 higher comp, we’re able to grow our test volume almost 50 times or 5,000% over that in the third quarter of last year and by more than five-tenths or 500% over 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 GAAP basis, which translates into operating income of $63.5 million and a record adjusted EBITDA of $67.4 million. This growth and profitability were made possible by the efficiencies we have created across our business from our live observation and our information management and reporting system to having our own property biochemistry and reagents. Through our enhanced reimbursement capabilities and our system, we have covered a significant amount of the ground and signed a number of substantial agreements, securing a large volume of tests in the quarter ahead. We have grown our headcount from 151 at the beginning of 2020 to approximately 500 employees today. None of this was done overnight and we believe we have a strong foundation 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 the long term. There are three particular areas of strength I would like to elaborate on, especially in the quality and scale of our customer base. The traction we have with insurance providers on reimbursement and our commercial initiative at-home test offering future genetic. On the customer front, we have made a meaningful strike in signing large agreements with a range of commercial organizations, municipalities, and medical institutions. Some of this we have publicly announced, but we have won a number of additional strategic customers that we have not publicly disclosed. Many of these institutions have never heard of Fulgent 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 an increase in the volume of our core genetic test from a number of new customers; Brandon will elaborate further on some of these customer dynamics. The second point I want to highlight is reimbursement. Historically, our customers have predominantly been cash-paying customers, with very little revenue coming from reimbursement. Given our rapid expansion in new customers, combined with quarterly test volume, we should now exceed 1 million tests. This has accelerated the need for reimbursement agreements with insurance providers. We believe that having these reimbursement agreements in place will continue to drive business from the customers in a way that we haven’t seen prior to the pandemic. The third area I want to highlight as an avenue of durable growth is our consumer offering, Fulgent Genetics. We launched the platform in 2019 to make clinical-grade genetic testing available to individuals in the comfort of their homes without needing to visit a doctor’s office. Our regional offering consists of three tests: carrier screening, newborn screening, and adult wellness. We had a picture at-home COVID-19 test service on 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 earnings calls, the cornerstone of our business is our technology and its flat growth platform, which will allow us to develop, validate, customize and launch our products and services. The investment made in our technology stretches back almost a decade and enables all facets of our business, which produce notable efficiency and scalability. We plan to get even more aggressive in our continued investment in 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 Fulgent 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 content and additional tests for our core business to address the growing needs for the genetic testing market. In sum, with our technology and the transformation of our business, we expand the capability will allow us to make a notable footprint in the screening and genetics market in the years ahead. With that, I’d like to turn the call over to Brandon to dig into more about the customer dynamics we’ve seen in this quarter and elaborate on the long-term drive for our momentum.

Brandon Perthuis, Chief Commercial Officer

Thanks, Ming. As Ming mentioned, we delivered more than 1 million reports during the third quarter, showcasing almost a 50-fold increase year-over-year and almost a five-fold increase sequentially. Despite the massive increase in volume that we experienced, we delivered results to our customers without any issues and with best-in-class turnaround time for RT-PCR results. During the third quarter, greater than 90% of our COVID-19 results were delivered within 24 hours. Some as fast as 8 hours to 10 hours, which our customers would agree is pretty incredible. This has all been possible because of how we built this company and how we have leveraged technology and operational excellence. We are a genetic testing laboratory built by engineers founded in technology. For years, we described ourselves as a technology company providing clinical genetic testing and we have continually emphasized the power of our technology platform. In the third quarter, I think we have proven it in practice. Not only that, we have done it the hard way, building our business organically from the ground up. Before we get into our COVID-19 business, I would first like to highlight the strong quarter we had in our core genetic testing business. While we projected a slight decline in our core business due to the pandemic, it has rebounded much faster than we thought and grew 57% sequentially from a revenue standpoint. This has been largely due to our ability to win new clients while maintaining relationships with existing clients, even as some of those clients experience lower test volumes amid the pandemic. To further emphasize this point, we looked at our top core business customers in the third quarter of this year and compared it to the third quarter of last year. Of those top customers, more than half were new. This demonstrates how our core business has continued to strengthen with the new customers we’ve been winning. Both new and existing clients are increasingly taking advantage of our expanded product portfolio, which now includes almost 19,000 tests. Customers are using Fulgent for hereditary cancer, cardiovascular genetics, neurological genetics, reproductive health and other newer tests that we’ve launched in the last 12 to 18 months. At this point, we have one of the largest, most diversified genomic test menus in the industry and we plan to continue to launch new tests. Switching to our COVID-19 business, during the third quarter, we brought on almost 80 new clients representing thousands of individual users. These wins included drive-through operations for the counties of Los Angeles, Alameda, Orange, Santa Clara, San Bernardino, Miami-Dade, the State of Utah, the City of Long Beach, and others. In addition to the huge drive-through operation wins, we announced our partnership with New York City Health + Hospital and their Test and Trace program for K through 12 testing, both on-site and at home. Regarding the on-site testing for New York City, we now have over 60 pairs of boots on the ground to help with school site operations. This program went live in October and we are now collecting thousands of samples per week throughout New York City. We also announced in the third quarter that we won a competitive bid for the entire State of Ohio prison system to provide testing for their 12,000 employees. In addition to the agreements we announced, there were a few other public announcements from our clients describing their partnerships with Fulgent. Those included Northwestern University using our Picture at-home test for their students who have returned to school program and the Pac-12 conference, using our test for athletic programs and sports officials. While we haven’t announced all of our wins, we will continue to publicly announce large strategic wins to the extent we can. Overall, I’m very pleased with the execution of our sales team in the quarter as we consistently won in competitive opportunities. Clients are choosing Fulgent COVID testing offerings for a variety of reasons, including our rapid turnaround time, supply chain availability, capacity, EUA approvals, our technology platforms and user-friendly systems. I’d like to spend a few minutes to discuss each of these in detail. Regarding turnaround time, it’s been widely publicized that labs have struggled with turnaround times and patients have experienced delays receiving test results. Initially, some labs were taking five days to seven days and sometimes longer to return results to patients. However, since the day we launched our COVID-19 test, we have delivered results within 24 hours. And even with the explosive growth we have seen, we have continued to improve. This has really been important for patient care and contact tracing and has been a huge differentiator for Fulgent. Second, supply chain. While many labs have seen shortages in critical supplies, such as reagents, transportation media, and swabs, we’ve had no such issues. We’ve been able to get these kits to our clients usually within one day of their request. We remain well-stocked to continue to fuel our growth plans. Third, our capacity. At this time, between our headquarters in Temple City, California, and our new lab in Houston, Texas, we have a maximum daily capacity of 60,000 tests per day. This has allowed us to serve our existing business, win new accounts, and continue to build a robust pipeline of new opportunities. At the same time, our clients are confident using Fulgent, and we could quickly scale to handle 80,000 tests per day and more. Fourth, our EUA approvals. Getting EUA for our standard physician-administered RT-PCR test was critical as it served as validation and a stamp of approval for our quality. It has been important when it comes to winning RFPs and government contracts. Our second EUA with our Picture at-home test, which has been instrumental for our growth, we are one of a limited number of providers with its approval, and at-home testing has proven to be a differentiator and an important testing tool to help fight against this pandemic. Furthermore, we have submitted an EUA for our next-generation sequencing-based COVID-19 test, which is still pending with the FDA. Last but certainly not least, the technology platforms we have built to support COVID-19 testing have been critical to our success. We have discussed these in detail on previous calls. But the platforms include the Fulgent enterprise and Fulgent community, which support corporate testing and drive-through testing, respectively. These have made managing large volumes of tests much easier for our clients and have connected them to the Fulgent platform, creating deep relationships that go beyond just being an RT-PCR test provider. Our clients are using our applications to run their daily operations. One other point of differentiation on our COVID-19 test offering, which we announced in September, is that we will give our clients an option to add Influenza A and B. This is done on the same sample with no need for clients to make any collection protocol changes. In the future, we plan to add additional pathogens to our panel to provide comprehensive testing for patients with respiratory infections. It is not just influenza and COVID-19 that can cause respiratory infections. In addition to those, there are approximately 500 million non-influenza respiratory infections occurring annually. The symptoms of respiratory infections, including COVID-19, are very similar and it can be difficult to differentiate. A comprehensive panel of pathogens can help provide an accurate diagnosis, therefore allowing for a more personalized treatment plan. The success we have had with COVID-19 testing has allowed us to expand our go-to-market strategy. More than ever we are working closely with payers and are making progress becoming an in-network provider. During the third quarter, we filed over 590,000 insurance claims, an increase of almost 9,000% over Q2. With this increased visibility with the payers, we can now tell the Fulgent story and show the value of having our services in their network. As Ming mentioned, COVID-19 has also served as a springboard for our consumer-initiated platform, Picture Genetics. Since obtaining the at-home EUA from the FDA and formally launching our Picture test for COVID-19 in mid-June, we have had significant demand. We believe Picture is now a well-known and rapidly growing brand that will continue to deliver for us going forward as we expand the number of tests being offered on the platform. It is quite common for families to have to wait many weeks or even months to see the pediatric genetic specialist, and usually the first step is to order a genetic test. We see a day where families can get the testing they need through Picture ahead of the visit, which has been a time saver with a specialist discussing results, prognosis, treatment plans, etc. Lastly, we have seen COVID-19 bring us many new clients. These include huge hospital systems, some of the largest specialty care clinics, government agencies, large companies, etc. Our relationships with these clients are very deep, and many will be able to use our core products and services in the future. To that end, during the third quarter, we engaged with one of the largest biotech companies in the United States in a competitive bid for their employees' testing. I’m excited to announce today that we have won this opportunity. Fulgent will test many thousands of their employees weekly on our enterprise platform from their several locations across the United States. Testing is expected to begin in January 2021 and will continue for at least 18 months. We're very happy to partner with such an amazing company and we look forward to helping keep their workforce safe. Switching gears, I’d like to briefly touch on the opening of our Houston lab, which we announced in August. This facility is a great example of the power and portability of the Fulgent technology platform. We’re able to launch this high-capacity lab in record time by building on top of our foundational Fulgent technology. The Houston lab is away from the Texas Medical Center, the largest medical center in the world. This puts our new lab in close proximity to an amazing talent pool, as well as world-renowned cancer centers and pediatric hospitals. Fulgent Houston will soon serve as a fully operational second site. And finally, I’d like to take a moment to clarify the confusion that has existed regarding the types of COVID-19 tests available and how they’re intended to be used. There has been some attention-grabbing headlines regarding rapid antigen testing. We want to be clear, antigen testing is not a replacement for RT-PCR. In fact, it’s hardly a competitor. Antigen testing is intended to be used for only symptomatic patients within seven days of symptom onset. However, data presented in antigen EUAs show that at day six and seven, the sensitivity drops measurably and positive cases are already being missed. This would lead to false-negative results, which are particularly troublesome. The EUAs of several antigen tests state that a negative result should be followed up by RT-PCR. The CDC has been clear that RT-PCR is the gold standard to detect SARS-CoV-2. RT-PCR provides the highest level of sensitivity and specificity. Simply put, it’s the best test. For early detection screening testing of asymptomatic and pre-symptomatic patients, RT-PCR is currently the only viable option. Coupling the gold standard test with our industry-best turnaround time makes the Fulgent solution a powerful tool to fight against the spread of COVID-19. I would like to now turn the call over to Paul Kim, who will walk you through our third quarter financial performance.

Paul Kim, CFO

Thanks Brandon. Third quarter revenues totaled $101.7 million, an organic increase of 883% compared to the third quarter of 2019. Billable tests in the quarter totaled 1,040,000, growing almost 5000% over Q3 of last year. The vast majority of this volume came from our business related to COVID-19. Though the majority of volume and revenues in the quarter were related to COVID, we saw a sharp rebound in our traditional genetic testing business. Compared to Q2, our traditional genetic testing business grew by more than 57%. The breadth of our customer base was impressive during the quarter with over a dozen companies contributing over $1 million of revenue each. Our ASP in the third quarter was $98, higher than the $96 we saw in the second quarter. The increase is attributable to the vast majority of our tests now going through reimbursement and our favorable payment experience today. Cost per test for the quarter was $25 and improvement of approximately 42% compared to the second quarter. Gross margin improved almost 19 percentage points sequentially. The primary reasons for the decrease in cost per test are continued automation efficiency, and, in general, the utilization of our technology platform. Turning over to operating expenses, total GAAP operating expenses were $11.9 million for the third quarter, up from $6.9 million in the second quarter. Non-GAAP operating expenses totaled $9.2 million, up from the previous quarter. As many mentioned, we made a small investment in a company to enhance antibody and antigen testing capabilities as well as assist in developing the landscape for therapeutics. This translated to approximately $2.6 million charged below operating expenses. Non-GAAP operating margin improved approximately 44 percentage points sequentially to 65.5%. We continue to make meaningful investments across all our departments in the quarter, but our top-line outperformance and increasing operating efficiencies are outstripping our investments into our business. Based on our profits, we recorded our 23% tax rate in Q3. This rate reflects our valuation allowance on our deferred tax assets and incorporates our projected annual tax rate for the year. Adjusted EBITDA for the third quarter was $67.4 million, compared to $3 million in the third quarter of 2019. On a non-GAAP basis and excluding equity-based compensation expense, income for the quarter was $49 million, or $2.08 per share based on $23.5 million weighted average diluted shares outstanding. We ended Q3 with cash equivalents and no debt. During Q3, we had an equity shelf program in place, which enabled us to sell approximately 1.3 million shares in the open market, raising $42.3 million in cash. With the momentum in our business, we received $17.8 million from a customer, who wanted to secure their position in delivering our services in the future. Moving on to our outlook, we see the second half of 2020 as a continuation of our inflection point in our business, which began last quarter. In addition to the momentum we had with our COVID test, our core genetic testing business, and sequencing as a service business have remained strong. We have expanded our partnerships on the reimbursement front and are seeing high demand for tests across our Picture platform. Most of all, we’re seeing our customers appreciating the clear differentiation by the application of our technology platform. Based on the explosive demand we’re continuing to see from the market and the quality of our customer base, we believe the fourth quarter will cap what has been a transformative year for our company. We now project test volumes for the year to be well over 2 million, which translates into over $235 million in revenue. More specifically, we anticipate Q4 revenues to be at least $110 million. With a powerful leverage in our model, this translates into GAAP net income, and excluding stock-based compensation, we expect non-GAAP net income of approximately $100 million or approximately $4 per share for shareholders in 2020. As a final note, we appreciate the patient shareholders who had faith in our business over the past four-plus years and we look forward to sharing updates to our business in future quarters. Operator, now you can open it up for questions.

Operator, Operator

Thank you. Our first question is from the line of Rachel Vatnsdal from Piper Sandler. Your line is now open.

Rachel Vatnsdal, Analyst

Great. Hi. This is Rachel on for Steve. Congrats on the nice quarter you had.

Paul Kim, CFO

Thank you.

Rachel Vatnsdal, Analyst

Yes. So that was a substantial guidance increase. Can you just walk us through how we should think of the core business versus COVID revenue in that guide? And then a little more forward thinking, can you walk us through what you guys are thinking about for testing demand over the next year or two with an effective vaccine on the market following that news we saw this morning?

Paul Kim, CFO

So I’ll take the first part of that question on the core business. And then I’ll turn it over to Ming, followed by Brandon, as to their thoughts on the landscape and the developments on the vaccine news from today. So on the core business, we were extremely pleased with how the core business performed during the quarter. As I indicated, the core business grew 57% sequentially, which translates into approximately 20,000 tests and revenues of approximately $10 million to $11 million, which is a record for the company. It’s consistent with what we posted in the third quarter of 2019, which was a high point before this quarter. And looking out into Q4, we anticipate that our volume for the core business to be approximately 25,000, with revenues being in the low teens, and the core business is performing better than we had hoped. And that’s because we’ve signed on many new customers. We also added content to our genetic testing menu across the board, whether it be cancer, women’s reproductive health, or pediatrics. And as you remember, we ended last year with approximately $32 million of revenues, all non-COVID. And before COVID, we had guided the street to $40 million of business for the year. During the earlier part of this year, in March, April, and May, during the first lockdown that impacted the core genetic testing business across the industry. But because of the additional capabilities that we made in terms of reimbursement, and the great traction that we’ve seen with reimbursement, we’ve signed on so many more core customers, and we’ve proven ourselves for the capabilities and efficiencies that we’ve had in the lab. We’ve seen a tremendous uptick in our core business in the back half of this year. So we’re still on track to meet the $40 million. But that $40 million of business that we had in the core business hasn’t been linear. We had a lull in the spring of the year, but we came back strong in the back half of the year. So what that tells us is if we continue on with the momentum and our capabilities as a company, our outlook for core business in 2021 should be very, very favorable. I’ll turn it over to Ming, who can give commentary on the vaccine.

Ming Hsieh, CEO

In terms of vaccine development, we welcome the news of the vaccine development because we do see continued demand for Fulgent Genetics to provide faster, cheaper, and more accurate tests in terms of diagnosing COVID-19. The addition of the vaccine developments brings an additional requirement for testing to be faster, cheaper, and more accurate, including antibody tests and antigen tests. So I think this has created new opportunities for Fulgent Genetics in this space. I do not believe COVID-19 will go away easily. But as long as there is a requirement in this space, Fulgent Genetics will be there to provide faster, cheaper, and more accurate tests in response to the pandemic. Brandon can give you some details.

Brandon Perthuis, Chief Commercial Officer

Yes, certainly. Hi, Rachel. Brandon here. We continue to believe that the COVID-19 testing is quite durable, right? We think it’s going to stretch well into 2021 at similar levels. Who knows? We don’t have that crystal ball. No one does, right? But we think we’re extremely well positioned to be a major player in this market. So we think it’s going to be around with us for a while, at the levels that we are forecasting in Q4 and Q1. Should testing begin to slow down a little bit, the way we’ve positioned this company with our technology platforms, we’re going to continue to take market share from other providers. A lot of our wins have been organic. That’s a fact. At the same time, we are taking market share from others. So we think we can play a dominant role in testing, we think it’s quite durable. The platforms we built, the turnaround time, the systems, I think we’re going to be a player deep into 2021.

Rachel Vatnsdal, Analyst

Great, thank you for all that color. And next you just give us more details on the contracts you guys have won. For example, what are the terms and how long are they, and do you have any exclusivity agreements?

Brandon Perthuis, Chief Commercial Officer

All of the above, Rachel. Some are exclusive, some are not. We look at the contracts; they range from month-to-month to 24 months. I think our longest one we signed so far has been 24 months. These contracts have been with government agencies, municipalities, big companies, you name it: colleges, sports organizations, you name it. A lot of these contracts are laboratory services agreements; like I said, some have exclusivity and some don’t. Most of them, I would say a majority of them have some legs to them, where they’re going to stretch many months and deep into 2021.

Rachel Vatnsdal, Analyst

Great. And then last question for me is that you guys have quite a bit of cash following the COVID-19 tailwind. Can you talk about your plans for using the money to invest in the business? Thanks.

Paul Kim, CFO

That’s an excellent question. Yes, we generate a lot of cash based on the momentum that we had in the business, and we believe, capping off this year, it would demonstrate several things. One, the viability and the permanence of our business model, two, the efficiency, as well as the scalability of Fulgent Genetics. We believe in our traditional genetic testing space, or in the wider screening market, that we will be one of the consolidators to look at businesses and technologies that we can incorporate or potentially incorporate, as our own to enhance our technological lead in addition to making a stronger company.

Ming Hsieh, CEO

To add to Paul’s points, we’ll continue to invest carefully to enhance our position in terms of our technology and also our market positions.

Rachel Vatnsdal, Analyst

Great. That’s it for me. Thanks, you guys.

Ming Hsieh, CEO

All right. Thank you, Rachel.

Operator, Operator

Our next question is from the line of Erin Wright from Credit Suisse. Your line is now open.

Erin Wright, Analyst

Great. Thanks. You’ve obviously been very nimble here with the COVID response, which has been impressive, but I guess how can you repurpose some of the capacity expansion in a post-vaccine sort of world? How does that fit into your longer-term plan from a capacity standpoint? Thanks.

Ming Hsieh, CEO

Erin, that’s a very good question. As I mentioned, COVID-19 is not going to go away completely. Our investment in terms of capacity is always multiple-use. We’re not only using our tests for COVID-19, but we also put our other genetic tests. As we continue seeing the increase in demand, we increase our automation. This automated machinery can be used for multiple purposes. As you recall, all our lab management systems and software have been developed in-house. So we can definitely program or repurpose some of those equipment getting into the mix of complete automation.

Paul Kim, CFO

Erin, from a numbers perspective, this is Paul. You can break out the investments that we made, as well as spending in a couple of different buckets. Number one, our total fixed assets and equipment purchases for the year are going to be between $10 million and $15 million. We have added a number of people to the organization, but not all of them are employees; many of them are consultants in the operational lab area. If you take a look at the amount that we’re spending for COVID versus what COVID has brought us just for this year, we’re going to be generating approximately $200 million of COVID business on top of massive profits. We’ve already gotten massive returns on those investments. COVID is not going to go away at the end of 2020. We see these contracts going deep into 2021. We believe we’ll have a material level of COVID business. Whatever investments we’re making, we believe that we’ll have immediate returns on that. From an operational sense, we can quickly deviate the resources into other areas that we believe will be fruitful for the company.

Erin Wright, Analyst

Okay. That’s helpful. And then on the reimbursement front, obviously, we had favorable reimbursement for COVID testing. CMS has extended that through late January. How long do you think that lasts, and do you feel comfortable — I assume you feel comfortable now based on your prepared remarks in terms of your turnaround time to meet their requirements?

Paul Kim, CFO

Yes. Erin, we were happy to see what they did actually, to reward those laboratories that can deliver on turnaround time. We think that’s incredibly important when it comes to contact tracing. The turnaround time needs to be 24 hours or less for this test to be as powerful as possible. Other than their decision to do that, we hope that the reimbursement rate will continue deep into 2021. We’ll see how it plays out. I think, as Paul mentioned, we do have some additional leverage in our cog there. We’re also on the private side as well, not just the Medicare and Medicaid from the CMS perspective. We hope that will stick around, and we think it will. In terms of meeting the turnaround time to get that extra reimbursement, we are incredibly confident in our abilities to do that.

Ming Hsieh, CEO

Remember, the COVID-19 test started as a $50 test. Most labs could not survive without a price to CMS or increase the rate. Most labs could not meet the response time. CMS gave two rates: $100 for the 24-hour result for those who can meet the response time or $75 if we cannot meet the 48 hours response time. Fulgent Genetics is in a strong position to meet the time challenges and also wants to be able to perform in this market at any price to compete. We believe Fulgent Genetics, when we get in, we’re not the highest provider, but we deliver low-cost competitive bids effectively and efficiently. We are able to deliver quality results. We will continue to enhance our position in this area because of our technology, biochemistry capabilities, and pipelines.

Brandon Perthuis, Chief Commercial Officer

To give you a point of reference on reimbursement, we have $90 million of accounts receivable at 9:30. As of today, we collected on more than $60 million of that $90 million balance. The reason why we’ve been able to collect that kind of amount is because of the efficiencies and enhanced capabilities that we have as a company in the area of reimbursement. As Ming indicated, the CMS reimbursement rate is $100. Starting January 1, it stays at $100 as long as you’re able to meet the turnaround time. But because our turnaround time is just getting quicker with additional volume, we don’t have a whole lot of doubt regarding whether we can meet that threshold starting on January 1, 2021.

Erin Wright, Analyst

Okay. Sorry. Thank you.

Operator, Operator

Next, we have Kevin DeGeeter from Oppenheimer. Your line is now open.

Kevin DeGeeter, Analyst

Great. Thanks, guys. I want to revisit genetic testing. Paul, some of your comments with regard to how to think about that portion of business for the year. I believe I heard you correctly; you feel comfortable with the $40 million recorded revenue for genetic testing for the year. If our math is right, that suggests somewhere around $15 million for Q4 or another 40% sequential growth in that business on top of the 57% in the current quarter. Can you just comment a little more about what’s driving that? What portion of the business is hereditary cancer? Is it carrier and how should we think about, if our math is right, that $15 million as a good baseline to think about building growth into 2021?

Paul Kim, CFO

That’s an excellent point. So we are on track with our original guidance, which is quite an achievement because a lot of the diagnostics companies found 2020 to be essentially a throwaway year. Oddly enough, it seems like we’re on track to meet the original guidance before COVID hit. The reason why it’s accelerated in the back half of the year is that during the lockdown period, and even with the momentum of the COVID business, we continued to sign on additional customers across the board in cancer and women’s reproductive health, as well as in pediatrics. We believe that as things open up, and as people get more comfortable going to clinics, the comfort of returning to normalcy for genetic tests will just open up the doors for even more enhanced business for our core NGS testing. I’ll turn it over to Brandon; he can provide more commentary on the number of customers, quality of customers, as well as the size of programs that they’re thinking about for our core business.

Brandon Perthuis, Chief Commercial Officer

Kevin, yes, I think, in the script, I stated we had new customers in Q3 this year versus last year, and I actually got a text that I cut out a little bit. So I’ll reemphasize what I said. In the third quarter of this year, greater than half of those customers were new. We look at our largest customers in Q3; more than half of those were new this year. So Paul’s right; we’ve continued to bring on new customers, and we continue to win business. These customers are not running at full speed; let’s make no mistake they’ve been impacted by this pandemic. But this growth has been fueled by continuing to win new customers. We think when our expanded portfolio of customers is running at full speed, when they’re seeing the same number of patients they saw pre-pandemic, it can be a pretty powerful turning point for our company.

Paul Kim, CFO

The last thing is on the cost side. When we talked about the efficiencies we have for COVID, but our core business has also gained a lot of benefit from the automation and the efficiency. Our cost per test during Q3 on a full GAAP basis was $25. On a non-GAAP basis, it’s even lower than that. But that includes our core genetic tests on top of COVID. We’re not going anywhere, and we believe we can compete in any kind of environment.

Kevin DeGeeter, Analyst

Okay. Great. No, that’s super helpful. And as we think about your continued menu expansion, you did call out some opportunities with regard to infectious disease side of the portfolio, but are there important or meaningful menu expansion opportunities in genetic testing? Do you think continue to feel this type of growth to existing customers as they expand their breadth of ordering into a broader menu for genetic testing?

Ming Hsieh, CEO

Well, Kevin, if we throw away $100 million, you can easily buy a $20 million or $30 million business. But that’s another way we do. We definitely see business opportunities. As we walk into each opportunity, we need to make sure we have a sound business model that’s beneficial to our clients as well as providing returns to our shareholders. With this organic growth, I think we are going to focus on the area of cancer and advance oncology treatment. How do we provide precision medicine? Fulgent will continue to invest in these areas; we will introduce products in this area. Due to COVID-19, I think we did slow down introductions of these products. But it definitely is one of the areas we will focus on.

Paul Kim, CFO

Yes, we’ve been on a test launch craze for the last year, a year and a half. And now our test menu is over 19,000 tests. So we continue to pump out new tests. We think that’s important, looking at different diseases and different phenotypes. So yes, we continue to develop new tests. I guess, sort of tactically speaking, a couple of weeks ago, we did launch a pharmacogenomics test, which we’re pretty excited about. We have not played a major role in pharmacogenetics in the past. But with our technology, capture set, and pipelines, we were able to develop that pretty quickly and will be in the market soon, which will help in personalized therapy and drug treatment.

Kevin DeGeeter, Analyst

So very exciting. Thank you for taking my questions.

Paul Kim, CFO

Thanks, Kevin.

Operator, Operator

There are no further questions at this time. I will now turn the call back to Nicole for any final comments.

Nicole Borsje, Head of Investor Relations

Great. Thanks everyone for joining our call today. We look forward to keeping in touch with you in the days and weeks ahead. Have a great day.

Operator, Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you all for participating. Enjoy the rest of your day. Keep safe, and you may now disconnect.