Good day, ladies and gentlemen, and thank you for your patience. You've joined the Fulgent Genetics Q1 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Ms. Nicole Borsje with Investor Relations. Ma'am, you may begin.

Great. Thank you. Good afternoon, and welcome to the Fulgent Genetics First Quarter 2017 Financial Results Conference Call. On the call today is Ming Hsieh, Chief Executive Officer; and Paul Kim, Chief Financial 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 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 its quarterly report on Form 10-Q for the first quarter of 2017 and the related press release announcing its financial results for that quarter, both of which are available on the company's website. Management's prepared remarks, including discussions of earnings and earnings per share contain financial measures not prepared in accordance with the accounting principles generally accepted in the United States or GAAP. Management has prepared 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 first quarter 2017 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 net loss and net loss 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 welcome to Fulgent Genetics First Quarter 2017 Earnings Conference Call. We would like to thank you, all, for joining us today as we discuss our financial results and the accomplishment for the quarter. I will discuss the highlights from the quarter and then provide updates on our strategies and objectives. Then Paul will go through our financial results and provide an update on our outlook for the year. Let me first provide an overview of our financial results in the quarter. Revenue grew 50% year-over-year to $5.3 million. Billable test end of quote in the quarter were 4,422, an increase of 82% year-over-year and 14% sequentially. GAAP income was $233 -- $232,000 and non-GAAP income was $560,000. Although we saw strong billable test growth, revenue came in slightly below our expectation due to product mix and a lower ASPs. Our ASP during the Q1 was $1,200, a decline of 20% from Q4 2016. As we have discussed in the past, we expect our average cost per tests to be impacted by the mix of tests we saw during the given quarter. In Q1, we saw the fewer exome-based test with higher price points and the -- this dynamically impact our overall ASP. However, even with the lower ASP, our non-GAAP gross margin in the quarter increased to 68%. Our gross margin remains high as a result of our technology platform and operational efficiency. Including lower overall cost to our -- per test. We believe this gives us a distinct advantage as we seek to increase volume going forward. Diluted non-GAAP income per share was $0.03 in the quarter and the cash flow from operation was $707,000. We believe we remain well positioned in the genetic testing market due to our differentiated approach and the…

Thanks, Ming. Revenue for the first quarter was $5.3 million, an increase of 54% over the first quarter of 2016. As Ming mentioned, we continue to see strong growth in our billable test volume, our revenue declined from Q4 2016, due to an increase mix of lower priced tests. Billable tests were 4,422 in the quarter, an increase of 82% year-over-year and 14% from Q4 2015. Our average selling price was approximately $1,200, down meaningfully from last quarter due to our product mix. Cost per test for the quarter was $420 on a GAAP basis and $387, excluding equity-based compensation of $146,000, representing an 11% decrease from Q4 2016 on a non-GAAP basis. Despite the ASP and revenue decline from last quarter, as Ming mentioned, our non-GAAP gross margin remained consistent at 68% for the quarter. We expect our gross margin may fluctuate as our test mix varies quarter-to-quarter. However, we expect to focus on continuing to drive down cost per test via increased volumes and continued automation and productivity in the lab, which will continue to counter any pricing degradation we may see in our business or in the industry generally. Moving to operating expenses. We made meaningful investments in the quarter with the hiring of senior members to our sales team, which Ming discussed. We added 6 individuals to our sales and marketing team and anticipate having approximately 13 sales employees at the end of our second quarter. Though the changes may not impact our top line numbers in the coming few months, we anticipate the restructuring and reinforcing of the sales organization will be highly beneficial for the company longer term. On research and development, we remain focused on advancing our technology platform and we'll continue to efficiently invest in research and development. Lastly, we saw greater…

[Operator Instructions] Our first question comes from the line of Bill Quirk of Piper Jaffray.

A couple of questions. So I guess, first off, on the lower test ASPs, you cited several times that this was mix. And so should we read into that then that there was -- that the overall ASPs on an apples-to-apples basis, the pricing remained the same and it was simply that we're moving to more like single-gene test versus panels and exomes like we saw on previous quarters?

You're correct. It's purely the product mix. It depends on the cost of the customer or the single gene test, that we do have lowered the ASPs versus the whole genome or whole exome test.

Okay. And then I guess based on your -- the guidance and a fairly significant cut to that guidance, it sounds like this unfavorable mix has continued into April. The reason I bring it up, of course, is that your fourth quarter call is at the end of February, and so I'm assuming that you start to see this in a pretty meaningful way in March and it continued into April?

Bill, that is also correct. But we do give the -- also, and try to give our new sales team some time to develop further, to [ enhance ] some of those tests, especially in the whole exomes and whole genome tests.

Sure. And that's a fair point, Ming. Obviously, the new team will need some time to bed in and start generating some incremental performance. Lastly for me, just on reimbursement, could you just remind us kind of where we are with respect to lives in the coverage and lives under contract?

Yes. Bill, we -- in the quarter, we also signed a contract with Blue Shield Blue Cross for a contract in Texas. And also, Paul?

We have it in 2 other states in the Midwest and then we are getting relatively close with 2 other national payers.

[Operator Instructions] The next question comes from the line of Erin Wright of Crédit Suisse.

How are -- a follow-up to Bill's question on reimbursement. How are these third-party relationships, third-party payer relationships influencing kind of your outlook for the year in terms of both pricing and volume?

So the short answer is not much. The -- going back to hiring the senior sales individuals, they come from other genetic companies and they come from other genetic testing companies, where they have a very strong positioning in the institution of the cash side of the market. So our primary focus with those individuals isn't necessarily to beef up what we've been doing on the reimbursement side. It's really to beef up on the cash paying portion of the market. And then as a follow-up to that, a number of these individuals have a lot of experience in the cash paying side of the market for institutional and exome-based test. So although we believe that it will take a little bit of time for them to get up to speed, we are very optimistic about what they could potentially deliver for the company.

Okay. And I guess as a follow-up to that one, can you speak to kind of the hiring strategy as it stands now? And what have you specifically added, I guess, quarter-to-date? And how big should we think about kind of the sales force being by the end of the year? And just broader size, kind of over the longer term, had some processes or strategies there have been expedited at all?

Yes. So I can give you numbers, and then Ming can follow-up on our overall strategy as to how we're going to continue to invest heavily in the sales and marketing space. So at the beginning of the year, we had approximately 10 salespeople. We had 4 international salespeople headed by a VP, and then we had 6 U.S. salespeople headed by a senior director. We have maintained and are in the process of adding another couple of people on the international side. On the U.S. side, we added 6 senior people, 2 VPs, 3 senior directors, 1 director. And then we rightsized the existing organization down to approximately 3 individuals. So we have a net add of 3 for -- on the United States side. And then if you sum that up with what we have on the international side, that gives you a total 13. We believe that will add a couple more people bringing that 13 to approximately 15, that's our target by the end of June. And then for the remaining portion of the year, we plan on adding another between 5 and 10 individuals, bringing the total number of people in the sales organization to somewhere in the low 20s to mid-20s by the end of this year.

[Operator Instructions] As there are no more further questions in queue, at this time I'd like to conclude the program. Thank you, everyone for your participation. You may disconnect your lines at this time. Have a wonderful day.