Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Fulgent Genetics Earnings Conference Call. At this time all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to your host, Ms. Nicole Borsje, with Investor Relations. Please go ahead ma’am.

Great, thanks. Good afternoon, and welcome to the Fulgent Genetics second quarter 2020 financial results conference call. On the call today is 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 such 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 in 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 March 31, 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 second 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.

Thank you, Nicole. Good afternoon, and thank you for joining our call today to discuss our second quarter 2020 results. I will review the highlights from our second quarter before handing over to our Chief Commercial Officer, Brandon Perthuis, to provide updates on our commercial success and the go-to-market strategy. And finally, Paul will discuss our financial results and our outlook in detail. Before I comment on our market strategy and business, I of course want to start by saying our hearts goes to those who have been impacted by the COVID-19. We are in together and we are doing as much as we can to drive this pandemic by offering our service which are critical for detection and follow point-of-care enable isolation in the proven – spread and provide the contact and treating information to enable authorities to implement coordinate the policies. The unforeseen demand of this year have brought the need for testing capacity into the couple public spotlights more than ever. Moreover, the urgency of this pandemic has pushed the limit of testing capacities across our industry, specifically, organizations have been challenged to research and develop new integrated testing capabilities and compress the timeline. While navigating the FDA approval process and scaling production on an accelerated timetable with the new public health and the social distance mandates in mind, ultimately many companies across our industry have gone through this process to serve the greater needs for the public health, solutions to fight both governmental and commercial customers. The global COVID-19 has also proven Fulgent is as a company. We are a technology company with a proprietary technology biopharma built for massive scale. For those who have been following us from the years, we have said on site that our technology platform is a differentiator between ourselves and…

Thanks, Ming. This quarter, more than ever, we demonstrated the power of the Fulgent technology platform and we played a meaningful role in the fight against the COVID-19 pandemic. At this time, we’ve received two EUAs from the FDA. One for our RT-PCR test which is administered by providers and a second for our at-home COVID-19 test Picture by Fulgent which we launched in June. We have additional EUA spending and we will issue updates as it become available. At this time, Fulgent has an impressive array on COVID-19 customers from some of the largest municipalities in the United States, to Fortune 100 companies, large specialty care companies with thousands of locations, large hospital systems with hundreds of locations, assisted living facilities across the United States and many more. In addition, we recently just won a competitive RFP to provide testing for student athletes for a major NCAA conference. Clients are choosing Fulgent because we have EUA approval, our turnaround time is consistently among the top in our industry with a median timeframe in delivering reports within 24 hours from receipt of the sample. The availability of our custom COVID-19 portal for both ordering and reporting and our rapid ability to interface the H07, API or other methods. As an example to layer, we were able to interface with large municipalities in less than three days, We now have numerous clients sending thousands of COVID-19 samples per day and still have a bandwidth to serve small clinics in addition to these large organizations. Operationally, it’s been an impressive overhaul. We are now running 24 hours a day, seven days a week, as – we’ve doubled our company headcount in the last three months to over 300. We’ve scaled COVID-19 capacity from a couple thousand tests per day to 10,000 per…

Thanks, Brandon. Second quarter revenues totaled $17.3 million, an increase of 105% compared to the second quarter of 2019. Our U.S. business remains the most significant driver of our momentum. The revenue from the U.S. grew 141% year-over-year in the second quarter, representing 93% of total revenues in the quarter. Billable tests in the quarter totaled 180,500 growing 1003% over Q2 of last year. The vast majority of the volume was our business related to COVID-19. Our ASP in the quarter was $96, decreasing 84% from the first quarter. Cost per test for the quarter was $43 on a GAAP basis, and $41 excluding equity-based compensation of 270,000. Our gross margin improved 8 points sequentially and non-GAAP gross margin improved 6 percentage points sequentially. The primary reasons for the decrease in cost per test were due to the heavy mix of COVID-19 volume. However, even with the heavy investments in our operations, including equipment, personnel, our gross margins improved notably from the prior quarter due to the utilization of our technology platform. Now turning to operating expenses. Non-GAAP operating margin improved approximately 34 percentage points sequentially to a positive 21.5%. So we made aggressive investments across the board in all facets of our organization including operations, sales, marketing and G&A, the power of our technology platform proved to be extreme leverage within our business model. We believe this leverage is just a beginning of what’s in store for the remainder of the year. Our total GAAP operating expenses were $6.9 million for the second quarter, up from $5.6 million in the first quarter. Non-GAAP operating expenses totaled $6.1 million, up from $4.9 million in the last quarter. In a single quarter, we have already fully recovered the investments that we made in our COVID-19 test research, development and offerings and…

[Operator Instructions] Your first question comes from the line of Sung Ji Nam with BTIG. Your line is now open.

Hi. Thanks for taking the questions. Congratulations on a phenomenal quarter and also thank you for everything you guys are doing around COVID testing. Maybe just a few questions in COVID testing, I was curious about just the different offerings you have – the three end-to-end web-based solutions. As you look out for the balance of the year and beyond, how do you see those the mix of the three different types of, I guess, sources for testing opportunities? Will it be a pretty evenly spread situation? Or do you anticipate more volumes through one of those more than others?

Brandon, why don’t you take the call first?

Yes, certainly. Thank you, Sung Ji. To your questions, we actually probably have more than three different options at this point, but let’s focus on sort of the three main modalities which is sort of the professionally administered test like from a hospital or a clinic, the drive-through and in the walk-up and the at-home testing, and we’ll add towards the back-to-school and back-to-work program. So, currently, we are seeing a lot of volume from the drive-through testing facilities which are been run amazingly by these municipalities, getting a lot of people access to testing they need. But looking forward, as the country continues to reopen, we are seeing tremendous demand and necessity for back-to-work and back-to-school testing. So, we have actually developed the two platforms to assist that. Here at Fulgent we test our employees every day on one of those platforms. It’s extremely convenient. So I think the back-to-work and the back-to-school is probably going to be one of the larger growth areas for COVID-19 testing going forward. We think that’s incredibly important to continue to fight this pandemic for contact tracing, for monitoring. We are seeing large corporations that want to test their employees once a week, sometimes three times a week and these solutions that we’ve built make it so easy for them to do that. Welcome to a test station, scan their employee badge, scan the tube, swab yourself, walk away, less than a minute per employee. So I think we are really excited to continue to help with the back-to-work and the back-to-school, helping our teachers, helping our students and maybe turn it back Ming if he has any additional comments.

I think that in addition we do offer the IgG, IgM serology type test for the labs. We also continue in terms our NGS capabilities for the research organizations, as well as the pharmaceuticals. So, we have seen a lot of opportunities ahead of us in the pandemic to fighting in the business pandemic. Of course we continue adding our capabilities and we will update this to Wall Street as far as our new initiatives.

Fantastic. You guys answered a lot of my questions on COVID, but maybe one follow-up on the routine testing. It sounds like there is a lot of variability in terms of how different organizations, institutions are implementing that. Is that the case in terms of are there lot of variability across different routine testing strategies? Is there – are there recommendations in terms of what’s ideal? If you could kind of walk through that that would be helpful.

Yes, it’s a great question. I think there is some sort of general practice guidelines that are out there. But we see a lot of variability. Some companies wants test every day, someone test three times a week, once a week. So we see some variability there. One of the things that’s really been differentiated here at Fulgent is the fact that we do have one of the only FDA approved at-home test. But not only do we test the employees at their place of work, employees that work from home or perhaps employees that have tested positive in the past, and we will mail a case to their house for routine monitoring until they get a negative result. We can do that. So, I still think the country is trying to figure out perhaps the best testing protocol, how often to test, how to administrate, but most importantly, we’ve developed multiple different platforms and solutions to make potentially all of them much easier.

And then, Sung Ji, we also work with our partners. We are not the only ones, we are one of few that I would call to offer a fully end-to-end at-home test collection, the processing and then sending result back. We also have a partner. They are individually certified with their at-home test kits. And both organizations also partnering with us. We provide the back-end service. We provide the processing for several customers in that field. And that every world is a example of how we file the EUA application together they do the front end of collection. We do the back end process.

Fantastic. And then just lastly for me, it’s great to hear about the capacity expansion given the significant demand in testing. I was wondering kind of – I don’t know if it’s premature to think about it, but how do you guys see the sustainability of COVID-19 testing beyond this year? And as you are building out the capacity, are their strategies, in terms of obviously it sounds like you know there has been pretty minimal investment on your part, but at the same time, as you look out further, are there strategies to redeploy the capacities that you have rather applications in the future. I was just curious what you guys are thinking at this point. Thank you.

Sung Ji, this is good question. Technology has enabled us to do many opportunities. We are ready for the currently processing the COVID-19 as the infection rates decreases, we could do a similar footing as some of the other large legs try to result the capacity – currently we do not have capacity issues. We could easily expand in our capacity. A, we do not counter any single vendor in our supply chain, we do not have a material shortage. We do not have reagent shortage issues. And as a matter of fact majority of reagents we produce ourselves. Okay, so, that is a area. The second thing is, just scaling the COVID-19 and this – the valuation could have come and also potential other infectious diseases coming, we have to be prepared for the worst before we see rather something better. In those events, we have a new technology for filing more EUAs to prepare for pricing those potential outbreaks. And in terms of – in general, our technology is already is conceding people in this industry, spend hundreds of millions of dollars, try to open up for the insurance of contracts, because admittedly, they worth than the fleet of slot machines, as lived them with slot machines you threw a $100 in, in case for a few seconds to come back you probably have $0.50 coming back. But certain of the companies in different markets you throw $100 in, you didn’t get anything come out. That’s the fact. But our technology during this pandemic, we got the insurance industry. They knew whose operator, who can efficiently to offer this fees, produce a quality results and with a sustainable business model. At a $70 million that we generate across the 20% operating margin, we have continued to – our business or improved our operating margin because of our technology. So we are confident in this space. If the genetics is important and crucial to the healthcare industry, Fulgent genetics will lead the way. We are not only the leader in the technology, but we also demonstrated the business model of sustainability and give the money returns back to our shareholders unlike the people waste in matters of money.

Fantastic. Thank you so much.

[Operator Instructions] Your next question comes from the line of Steven Mah with Piper Sandler. Your line is now open.

Okay. Thank you. Hey guys. Congratulations on the quarter. Good stuff there.

Thank you, David.

Okay. So, maybe just, I’ll start off with a non-COVID-19 question, but it sounds like your core genetic testing business has hung in there, it’s hung back up to kind of normal levels. Has there been any disruptions with, because, I know, it’s complicated testing and you guys have hired a lot of employees. Any disruptions in getting out your core genetic tests. I know there seem to be a kind of big rush to get the COVID-19 results out, but has there been any impact on the core genetic testing business?

Yes, this is good question. Yes, Steve, it’s a very good question. The answer is no. Okay. We have maintained our key firm for our traditional genetic business and we have the issues of our production lines for the COVID-19 related businesses. We see those traditional business of TAT as important as our coming COVID-19 related business. Do you have anything?

No, I think your response main was – first no, the answer is no even it has been. So the processes are quite different as you can imagine and we’ve done a really good job automating the process in COVID-19. But the short answer is no. I mean, we have continued to meet our turnaround times. We continue to see a rebound in our core business, a combination of some pent-up demand and so bringing on several new customers and good execution by the business and the sales teams. So the last year is – it’s operating just in an incredibly impressive manner. I mean, we did 180,000 tests in Q2 with almost no steps whatsoever and I think arguably, the best turnaround time for COVID-19 in the United States. So, I mean, I am just really proud of the labs, really proud of the operations and look forward to continuing to leverage the technology to continuing to do the first testing.

And now that’s great. And then, okay, so maybe moving over to capacity. So you have noted that you are purposing a new building. You said you can scale eventually to 60,000 tests per day. How long should we think about the new building getting up to in terms of getting up to speed? I know you have to get a – it has to be a CLIA lab certified. Can you give us a sense on the timing?

Yes, I’ll turn to Paul in just a second, but I will comment on the CLIA license. They’ve actually done a wonderful job expediting CLIA licenses for COVID-19 laboratories. So, actually, it’s just a matter of days at this point if you have an EUA, you are doing COVID-19 testing, so I really applaud them for cutting their tapes and allowing us to get CLIA licenses in an expedited manner. But in terms of the timing of the new facility, I will let Paul take that question.

So, Steven, starting from the Temple City location, that location has a capacity of up to 30,000 tests per day. With the new El Monte building, we believe that that has an eventual capacity of up to 60,000 tests per day. But that’s not going to happen all at one time. We think that by the end of the year, we will be able to calibrate the El Monte lab to have a process up to 30,000 tests per day growing to 60,000 as we calibrate and expand that lab.

I see. Okay. Now that’s helpful. And – okay, and then on the test break down, I don’t know if you can share this with us. But can you give us a break down of sort of the mix that the COVID-19 test RT-PCR versus at-home versus NGS?

Yes. So, I’ll give you a breakdown. So out of the 17.3 million of revenues that we’ve had, I mean, it was about a 60-40 split. 60% of that being COVID and 40% - roughly 40% being non-COVID. And then, within the 60% the vast, vast majority is RT-PCR, the at-home, the Picture, it is getting tremendous demand. We actually think that the growth for that platform might even be higher than what we see for traditional RT-PCR. And then, for the NGS, we do have some business for that, but it’s a very, very small piece. We think that that will grow over time as we make our capabilities known with the pharma organizations.

Okay. Alright. That’s been helpful. And then, as you talk about your outlook and I apologize, you have had a bad connection. I think you said, Paul, you have contracts for 1.3 million tests in 2020. Did I hear it?

No, so, what you – what we have secured the supply chain from all angles, right. So, capacity, as well as supply is not an issue for the company. As far as our outlook for the year, what we said was we project us to do over 1.3 million tests for the balance of 2020, which translates into more than a $120 million of top-line revenues for the company.

I see. Okay.

So, in other words, if you add up Q1 and Q2, right, we did roughly $25 million of revenue. So that leaves the delta of $95 million for the year for us to make the $120 million. So, we anticipate doing close to $100 million of business for Q3, Q3 and Q4, right combined. And if you want us to get a little bit more flavor on how the trajectory is going to look, at this point in time, we see Q4 being approximately 10% higher than Q3.

Okay. Okay. And on the contracts, you guys are signing, school, healthcare facilities, can you give us a sense of how long these contracts are for?

Yes. Steve, it’s Brandon. That range anywhere between three months to 18 months. There is a pretty large variety in that.

Okay. Okay, yes. That makes sense. So that what I’ve been hearing from others and that people are wanting to lock down their testing. So, okay, so, that makes sense. Okay. Those are all the questions I have. I appreciate you guys taken the time and congratulations again.

Thanks, Steven.

We have no further questions at this time. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day. You may disconnect.