Good day, ladies and gentlemen, and welcome to the Q2 2019 Fulgent Genetics Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Ms. Nicole Borsje from Investor Relations. Ma'am, please go ahead.

Great. Thank you. Good afternoon, and welcome to the Fulgent Genetics Second Quarter 2019 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 on 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 and 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 first quarter of 2019, which is available on the company's Investor Relations website. Management's prepared remarks, including discussions of earnings and earnings per share contain financial measures not prepared in accordance with accounting principles generally accepted in The United States or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but they should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the second quarter 2019 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 incomes per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming.

Thank you, Nicole. Good afternoon, and thank you for joining us on our call today to discuss our second quarter 2019 results. I will review the highlights from the second quarter before Paul discusses our financial results and our growth in detail. We had a second quarter easily achieving quarterly results for both test volume and the revenue. At the same time, we found equal and equal margin and achieved a record cost per sale which should lead to very good and GAAP profitability in the quarter. Essentially revenue grew 56% year-over-year to $8.4 million. Billable test increased 187% year-over-year for new record high of 16,369 far exceeding the [indiscernible] of last quarter for at least 10,000 tests. With the strong warning, we have now reported more tests in the first half of 2019 than we created in all of 2018. Our GAAP was $515. Our ASP was $515 down from the 8% compared to the first quarter of 2019. However, it was offset by the record low cost of protest of $251 which was an improvement of 44% compared to the first quarter. The lower ASP continued to count on product mix volume and efficiency which will be discussed further in a moment. Non-GAAP gross margin in the second quarter was 69% up approximately 330 basis points from the second quarter last year and up approximately 4% sequentially. GAAP income was $331,000 and non-GAAP income was $1.2 million. Non-GAAP earnings per share was $0.06 in the second quarter. Adjusted EBITDA was positive $1.5 million in the second quarter. The strong growth was demonstrated in the second quarter, were achieved of ongoing traction we're having in the breadth of our offerings across our volume customer base. And with our collaboration agreement, the majority of growth in a test volume that…

Thanks, Ming. Second quarter revenue totaled $8.4 million and increased by 56% compared to the second quarter of 2018. While our international business remains stable, our U.S. business has continued to be a significant driver of our momentum. Revenue from the U.S. grew 103% year over year in the second quarter, accelerating from 43% year over year growth in the first quarter of 2019. Revenues from the U.S. represented 79% of total revenue in the second quarter up from 67% in the first quarter. Billable tests reached a new record high of 16,369 in the second quarter, growing 187% over Q2 of last year and increasing 117% from the first quarter of 2019. Our average selling price was $515, down from the first quarter as a non-pediatric business represented the majority of revenue in the quarter. While our ASP has declined due to product mix the costs associated with these tests have continued to decrease proportionately at a greater speed -- at greater pace as we scaled. Cost per test for the quarter was a record low $221 and on a GAAP basis and $211 excluding equity-based compensation of $167,000. We are pleased with the improvements we've seen in our corporate tax which has increasingly benefited from operational efficiency, higher-touch volume, better productivity, and the use of our proprietary technology including probe. The leverage we've generated from a lower average cost per task has resulted in a meaningful improvement and our gross margin. Non-GAAP gross margin improved 12 percentage points, sequentially and 330 basis points year-over-year. We expect that we reach the new normal with quarterly test volumes while exceeding 10,000 plus per quarter. And this volume we expect that our gross margin should remain strong in the coming quarters. Now turning to operating expenses, we remain committed to managing…

Thank you. [Operator instructing] Ladies and gentleman, if you have a question at this time, please press star, then the number one key on your touch tone telephone. If there's a question to be answered or you wish to remove yourself from the queue, please press the pound key. The first question is from Erin [ph] from Credit Suisse. Your line is open.

Great, thanks. Can you think of some of the key factors that drove that sizeable acceleration in volume in the quarter, were there any of your new partnerships or collaborations that were notable, meaningful, contributor or were there sort of timing factors that we should be thinking about in terms of the quarterly progression? Or do you think this is sort of you hit it longer terms of inflection point here? Thanks.

Erin, thank you for the question. We have several collaborations, the partners which contributed to the significant month revenue for this quarter, and we continue to expand our reach for more than our new partners who will join us and continue [indiscernible].

Erin, as you very well know, we made a significant expansion in the product and the service offering that we had over the course of the last 12 months, whether it is in the area of cancer or reproductive health. It's bad for the market that we do have those capabilities. The second thing is what the new sales organization is to accept what they had forming these long-term collaborations and partnerships that take time. The other thing that we've done is because we need a calibration of our operations. We made the pricing in this very competitive environment, competitive. Whether it be service offering, the result of the test, the quality of the test, the turnaround time, the price, we made all those things available and we believe that's what's causing the inflection point. As far as sustainability, we feel confident based on the pipelines that we see, an attraction that we have with this collaboration agreements, for us to be confident about raising our outlook for the year. We believe that the second half of the year is going to be even more successful than what we achieved in the first half of the year.

Okay, that's really helpful and you've clearly seen some of the leverage here with the building volume, but I did want to ask on the ASP front and I think you just mentioned some of that, but how much of that was a proactive effort versus test mix, in terms of the decline in the ASP? This was a little bit lower than we were expecting, but clearly you've seen the leverage there on. I'm curious what the dynamics were from the ASP perspective, in that we should kind of continue going forward or how should we be thinking about that?

Erin, thank you for this tough question. Everybody worries about the declines in the ASP, I think the struggle with the ASP is the proactive act from our end as response to market change in the industry. You haven't seen some of our competitors have been lowered that they're caused [indiscernible]. Regardless, they're losing money. From our end, efficiency of our cost reduction will light the share some of the success with our partners, so we've lowered our cost and made our product more competitive. But we are not loyal that the cost will amplify the quality. We reduced our turnaround time and we increased our volume and also we lowered our cost. I think our partner will respond to some marketed net and provide services if the industry is looking for. If we take a look overall after we continue in cost reduction, in terms of cost from our side, we continue to invest in technology, use of artificial intelligence and make more automation for the entire process. So we could exceed this market and contribute to anybody.

Okay, that's helpful, thank you.

Your next question is from Bill [ph]. Your line is open.

Great, thanks and good afternoon. A couple of questions. With respect to the volumes, is there any way to break out what the new lower ISPs did in terms of driving some of that volume, as compared with same store sales with existing customers as an example?

Bill, as you probably know, our tests are designed pretty inflexible, so almost every test that comes in is cut fund in our workflow. We couldn't track that much in terms of coming of what tests. But overall, our tests are a combination of clinical, our collaboration tests and the research sample, they are all mixed together.

I see. Okay, then maybe a good point asking the question would be, is there any way to talk about the volume growth from new customers or existing customers?

For this quarter, the majority of our tests, we see that that's the area that provides the most increase. But some of the quarter, if you recall the last few quarters they are strong in terms of reproductive screening tests, but this quarter comprised of tests [ph].

I see. I guess one for Paul, the guidance implies that the third and fourth quarter raise the lower end guide at the $21 million so that you have the slight sequential decline in revenue, and I guess I'm curious why we would see a scenario like that given the really nice momentum you're seeing in volumes? And separately, perhaps from Ming, an update on the latest with respect to your China venture.

Bill, we got in the first half of the year close to $14 million in revenue and I think what you're commenting on is if we get $14 million and if you're guiding to $29 million, doesn't that equate to sequential decrease of sales. But surely the answer is no, we don't anticipate that that's going to happen. Based on what we see, we think that this business will continue to grow in each of the quarters that we have for the year. And that's the reason why we said the guidance is at least $29 million, so we certainly expect internal of the company, that our overall business will be greater than the $29 million, but we are being very cautious because we missed estimates during the past couple of years and we certainly don't want to do that going forward.

Understood, thank you. Ming, just the question on the latest with respect to China venture.

Yes, thank you Bill. For the China venture, we threw a couple for rebuild period. This year as seen from our financial results, the loss has been narrowed in China for operations. We continue seeing growth and new opportunities arise in our China venture and we're looking forward to 50 years of sales in China in this year. Or however, as you may know, last year's revenue was a $1.5 million, but this year we're expecting a significant increase in that market. The GP in China in major institutions to start their clinical tests and the business will grow. Last year was a single, this year was a growth.

Okay, got it. Thank you very much, guys.

I am showing no further questions at this time. Ladies and gentleman, let's conclude today's conference, thank you for your participation and have a wonderful day. You may all disconnect.