Good day and welcome to the Q2 2022 Fulgent Genetics Earnings Conference Call. As reminder, today's call is being recorded. At this time, I would like to turn the conference over to Nicole Borsje. Please go ahead, ma’am.

Great, thanks. Good afternoon and welcome to the Fulgent Genetics second quarter 2022 financial results conference call. On the call today are Ming Hsieh, Chief Executive Officer; Paul Kim, Chief Financial Officer; Dr. Larry Weiss, Chief Medical 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 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 risk factors that may cause results to differ from those described in forward-looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-K for the year ended December 31, 2021, 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 2022 for more information, including the description of how the company calculates non-GAAP income and income per share, and a reconciliation of these financial measures to income and income per share to most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming.

Thank you very much, Nicole. Good afternoon. And thank you for joining our call today to discuss our second quarter 2022 results. We had a very good quarter as we continue to focus on execution and approval of our core business. I'll cover some highlights on the quarter before turning the call to over our Chief Commercial Officer, Brandon Perthuis, to discuss product and go-to-market updates. Then Dr. Larry Weiss will provide an update on our CSI expansion strategy. Finally, Paul will cover our financial results and the outlook in detail. Taking a look at the second quarter where the revenue of $125 million was in line with our guidance. However, outperformance in our core business offset some softness in COVID-19 revenue, which we view as a net positive. We delivered over 1.3 million tests in the quarter, down about the 14% compared to Q2 of last year. The decline in the test volume and the revenue is directly tied to the slowdown in COVID-19 testing, which came down materially relative to Q1 and the highs of 2021. Paul will cover the breakout between our core and the COVID-19 business in more detail. But on a high level, our core business grew over 100% year-over-year to $45.3 million, ahead of our guidance of $40 million. We continue to drive positive EBITDA and cash flow. Despite our increasing investments and generated $0.37 per share in GAAP EPS and $11.1 million in operating cash flow in the quarter. The second quarter was marked by successful acquisition of Inform Diagnostics which closed in late April. Our team has been working diligently on a smooth integration of Inform Diagnostics businesses into Fulgent's platform. Brandon will cover this transition in more detail, although we are pleased with the early momentum we are seeing across the…

Thanks, Ming. During the second quarter, we continue to execute on our post COVID-19 strategy of becoming a national one-stop shop for clinicians across a wide variety of specialties, including oncologists, hematologists, pathologists, pediatricians, neurologists, reproductive health clinicians, and more. We have also taken big steps to expand our sales team and capabilities around pharma services, historically referred to as our sequencing as a service business, which has been an impressive growth driver for us over the past couple of years. Starting first with our recent acquisition of Informed Diagnostics. The integration is going well and nearing full completion. We have right-sized the company and tapped into synergies across the organization including leadership, IT, sales and operations. We have also launched multiple projects to leverage commercial synergies and cross selling capabilities, including marketing adult neurogenetics to the vast neurology client base at Informed Diagnostics and selling HelioLiver to our GI client base. We have additional services we will be launching that will be targeted at the large national Informed Diagnostics client base. In regards to the sales team and go-to-market, we have identified multiple expansion territories where Informed Diagnostics has not had a historical sales presence, but has all the right managed care contracts to be successful. We are actively recruiting these positions and plan to fill them in the third quarter. Leveraging test menus, teams and technology from our recent acquisitions, we are excited to announce the formal launch of Fulgent Oncology. By combining the power of our recent strategic acquisitions of CSI Laboratories and Informed Diagnostics, along with our NGS technology and world class bioinformatics team, this new division will be focused on penetrating the dynamic market of precision medicine. We have assembled the initial sales team, recruiting experienced oncology sales executives, along with an experienced industry commercial…

Thanks, Brandon. We have made exciting progress on our oncology initiative on a number of fronts. First, we can declare our CSI integration accomplished and a complete success. You may recall that we acquired [Technical Difficulty] in our first serious move into oncology diagnostics. CSI was a major regional player in the pathology oncology space with a great reputation for high service levels, but was not really growing. With the integration into Fulgent's platform, CSI is now set on a path of becoming a formidable player on a national basis. We've injected new capital and expanded the sales team and its geographic reach, again, leveraging CSI service excellence, and we are successfully attracting new clients. We've also been very pleased with the contributions that the CSI team has made to our integrated business. They have an extremely talented team across their employee base, and we have been leveraging these individuals to help manage the more recent acquisition of Informed Diagnostics. With the CSI integration essentially complete, we are turning our attention and resources to the integration of Informed Diagnostics, leveraging a similar playbook. Informed Diagnostics expands our opportunity within our client base, opening up new cross selling avenues, expanding our footprint in oncology testing with their hematology/oncology business line, and enhancing our interest in digital pathology. We believe, as others do, that digital pathology has the potential to transform the practice of anatomic pathology. We're in the early stages of the integration, but we have already identified numerous opportunities for cost synergies and other opportunities to upgrade their technology and systems. For example, we're replacing their eight color flow cytometry with state-of-the-art 10 color flow capabilities. As Brandon mentioned, we are excited to announce the launch of Fulgent Oncology, including a suite of oncology specialty testing products under the brand…

Thanks, Larry. Revenue in the second quarter totaled $125 million compared to $154 million in the second quarter of 2021, in line with our overall guidance of approximately $125 million. As Ming mentioned, [Technical Difficulty] COVID testing business continue to moderate, which we view as a net positive and in line with our long term strategy. Billable tests in the quarter totaled 1.3 million compared to 1.6 million in Q2 of last year. The year-over-year decline was again due to COVID testing dynamics. Breaking down revenue a bit further, roughly $80 million came from COVID-19 testing in Q2 compared to our guidance of $85 million. Revenue from our core business totaled $45 million which exceeded our guidance of $40 million and grew 102% year-over-year. As a reminder, our core revenue includes our NGS business, contribution from our Chinese JV, CSI and Informed Diagnostics, and excludes NGS COVID testing from the CDC. As demand for COVID PCR testing remains volatile, and generally trending lower, we continue to take a conservative stance on expected revenue from COVID testing. We remain focused on executing on our post COVID growth opportunities, which include the integration of Informed Diagnostics, expanding the reach of CSI's capabilities, executing on additional investment and partnership opportunities, ongoing work with Helio and joint commercialization opportunities, and growing the footprint from our China operations. Our ASP in the second quarter was $94, slightly low lower than the $99 we saw in the first quarter of 2022. Our ASP has fluctuated along with a mix of COVID testing, and this quarter we saw an outsize impact from lower ASP on COVID tests due to pricing changes in the market. Cost per test in the quarter was $45 versus $24 in the first quarter of 2022 due to largely shifting mix away from…

[Operator Instructions]. We'll take our first question from David Westenberg with Piper Sandler.

Congrats on the Fulgent Oncology, setting it up. So, we'll have some questions on that. So, let's start with the $45 million in core revenue. That was a pretty big number. I know you don't like to break out specifics in terms of product mix, but is there any kind of testing modality you might want to call out as performing pretty well in the quarter that helps you get to that that $45 million in in core revenue?

So as we indicated when we announced the Informed acquisition, we anticipated that the contribution on a quarterly basis from Informed Dx would be approximately $22.5 million per quarter. So when we take a look at the outperformance of the core revenues, it really has to do with the beginning of the momentum that we're seeing for our core business, which includes CSI. CSI was an asset that we acquired over a year ago. And with integration of that acquisition, we're really beginning to see the momentum building that we have based on the investments that we've made in CSI combined with the investments that we made here in the West Coast. The other part of the momentum that we're seeing in our traditional NGS business, the groundwork that we have laid out with the elevated platform of Fulgent Genetics is driving the momentum that we have in the core revenues. Now, in terms of the testing mix of our core business, I'll turn it over to Larry and Brandon. But it's obvious to say that the mix includes NGS oncology, and that includes both NGS as well as molecular. It also includes our sequencing as a service, the biopharma business, and it also includes the revenue contribution from Informed Dx, which largely consists of GI and derm.

I don't have a whole lot to add to that. We have one of the largest testing menus in the United States. So it's good to have that diversification. So it's hard to pull out any particular area that outshined the other. But as Paul mentioned, the assets we've acquired in CSI and Informed Diagnostics are meeting expectations. Fulgent Oncology didn't contribute to the revenue growth in Q2, but we think it will going forward in a meaningful way. Paul touched on our biopharma businesses, but we've taken NGS and we've scaled it across multiple different markets. And just overall, the business continues to perform well. So we will continue to invest in sales. We will continue to invest in technology platforms, and hopefully, continue the momentum into the quarters ahead.

I know it's pretty tough because you've integrated these businesses and it's hard to tell what is organic at this point because you probably are getting a lot of those revenue synergies. But is there anything to frame about the prior Fulgent business in terms of growth or even if you maybe can give some excess growth relative to what you thought it would be from some of the inorganic stuff? I know Informed is probably flat at this point. Are you extracting growth out of it, for example?

David, definitely we see the momentum from our NGS business as we add in additional capabilities. And we do see the attraction for us to provide our NGS services to some of the core [Technical Difficulty] as a premium solutions provider, quick turnaround time and complex services. And that's the area that we see our organic growth meaningfully.

Let's move on to Fulgent Oncology. This is pretty exciting development for you guys. I know you have the biggest kind of menu or one of the biggest menus in the US. But in terms of oncology, are there any holes in the business? And when I'm thinking about testing categories, I covered NeoGenomics for a little while. So, I kind of think of like the flow, the IHC, the FISH, the NGS, the PCR. Do you have all of those parts of a comprehensive oncology business? And I guess we'll stop there. And I'm going to ask kind of on the sales force, how national it is in terms of handling the volumes outside of regional. But I'll ask that next iteration, sorry.

Yes, we can check all those boxes that you mentioned for the West Coast lab alone, let alone that CSI on the East Coast also has similar technologies, maybe without the NGS. So we have all the technologies to provide a one-stop shop for oncology services. The East Coast lab is concentrating on a pathology clientele. And as previously discussed, West Coast lab is oriented towards oncologists. As we're just starting out, we're focusing on Southern California. But we're using this as a test model and plan to go fully national in the near future.

I'll just add that we check all the boxes you mentioned. In addition, we have one of the largest hereditary cancer test menus in the United States. So we really think Fulgent Oncology is something unique. We think pieces of Fulgent Oncology exist with our competitors and peers. But if you look at all of our service offerings, later on, really comprehensive hereditary cancer offerings, we think Fulgent Oncology stands out amongst our peers.

I'm going to stick with that. So, you're keeping it regional. Do you think you picked the right region? I know you guys are in Southern California yourselves. But I think about the existing structure of that kind of lab and there was a Clariant that was focused there, there was a Genoptix that was focused there. Is that a high impacted market competitively versus other parts of the country?

Well, we've been live now for one or two weeks. And I would say, Larry, the number of clients we've won in the first one or two weeks is well ahead of our expectation. So we think we've picked a region where we can take advantage of logistics. Turnaround time in this market is incredibly important. For some of our first clients we onboarded here recently, we're delivering turnaround times in the five to six day range when they were getting three, four weeks from their previous lab. So, again, this is just sort of our beta region. This will be a national launch, but so far, I think, commercially, from an onboarding perspective, we're well ahead of where we thought we would be.

We're seeing a lot of pent up demand, David.

[Operator Instructions]. And we do have a follow-up from David Westenberg.

Back to the pharma services business that you're setting up, is this pharma services business going to be mostly complementary to the oncology side of the business and specifically focused on kind of that Fulgent Oncology business?

Not necessarily. We think oncology is an important area [Technical Difficulty] relationships right now span a wide variety of healthcare and clinical trials, so maybe we're particularly strong in oncology, but the short answer is no. We have a multi omics approach now to our clients. Huge test menu, as we've mentioned, for our pharma services, proteomics, spatial biology, IHC, flow. So, we're ready to tackle that market on holistically.

Congrats on the monkeypox assay. I'm looking at case numbers. The case numbers are still pretty low. Is this actually a revenue contributing assay? Or is this kind of just a good thing to do for kind of society as we – we don't really have that many good monkey testing options today?

Well, the answer is both. There is a proposed rate for the new CPT code that would be favorable to Fulgent. So, certainly, the revenue would be there. But we also want to help. We realize that testing for monkeypox has been restricted. Not a lot of options. There's been a few labs that have launched tests, and we spun this up pretty quickly, did a good thorough validation. But with our technology and platform, we were able to get this going pretty quickly. And we can leverage the COVID-19 platform we built from ordering and reporting, our barcode system, our drive thru [Technical Difficulty] we will be able to respond in a big way.

Back to some of the capital deployment strategy. And I guess, this question is for Paul. You did do some stock buybacks. Is that kind of the direction you're going to take or you think you're going to take care for kind of the remainder of 2022 or near term? And then, in terms of – I know you do have commercial infrastructure that you're probably planning. And my guess is, if Fulgent Oncology winds up being a very successful business, you're probably going to allocate money for a nationwide launch. So, anyway, if you can kind of tell me how we should think about capital deployments in context of the things I just mentioned.

I believe that when you have cash cushion and we have cash generation, like Fulgent, all your options are open. That said, stock buyback is one of the ways that we can indicate to the market the value that we see in our equity. But that is not the primary usage of our cash. The primary usage of our cash is, first and foremost, investing it right into our core business, to penetrate our core markets, even deeper and wider. And then I would say, also the priority is to deploy the assets for technology, as well as business acquisitions that can enhance our position.

My last question here is, can you talk about COVID testing by region? And kind of what I'm getting at is, I guess COVID testing is down all over. But I think you mentioned in the past things like New York teachers, some of the stuff that's going on in Southern California. Is there still testing in those markets? Or has COVID fatigue hit even those places?

Dave, I think I said on the call that we're still processing a meaningful number of tests. Paul laid out our Q3 and Q4 guidance for COVID. So, a lot of those programs are still running. Some of them are winding down, some of them have winded down completely. But as we've seen before, as quickly as things wind down, they wind back up. So this is incredibly hard to predict. All we can do is calibrate our operations to adjust to these ups and downs. And should there be ups in the fall, which some people are predicting, we will be ready to respond. I don't know what more I could say beyond that.

Just going to let everyone know that there are no further questions at this time. And I would like to conclude today's teleconference. We do appreciate everyone's participation. You may now disconnect.

Thank you.