Greetings. Welcome to Fulgent Genetics, Inc. Fourth Quarter 2025 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Lauren Sloane, Investor Relations. Thank you. You may begin.

Good morning and welcome to the Fulgent Genetics, Inc. Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. On the call are Ming Hsieh, Chief Executive Officer; Paul Kim, Chief Financial Officer; and Brandon Perthuis, Chief Commercial Officer. The company's press release discussing the financial results is available on the Investor Relations section of the company's website, ir.fulgentgenetics.com. A replay of this call will be available shortly after the call concludes on the Investor Relations section of the company's website. 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, expectations, 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 makes 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 included in the company's actual future results may be materially different than 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 the forward-looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-Ks for the year ended 12/31/2024, and subsequently filed reports, which are available on the company's Investor Relations website. Management's prepared remarks, including discussions of profit, loss, margin, 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 these measures 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 fourth quarter 2025 for more information, including the description of how the company calculates non-GAAP income and loss, non-GAAP earnings and loss per share, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating profit and loss and margin, and adjusted EBITDA, and a reconciliation of these financial measures to income and loss, earnings and loss per share, and operating margins, the most directly comparable GAAP financial measures. The company does not provide reconciliations of forward-looking non-GAAP measures to the most directly comparable GAAP measures because the information necessary to calculate such reconciliations is unavailable on a forward-looking basis without unreasonable effort. With that, I would now like to turn the call over to Ming. Please go ahead.

Thank you, Lauren. I am pleased with the progress we have made this year as we execute our strategic objectives in both our laboratory services and therapeutic development business. In 2025, the laboratory services business sustained momentum as we delivered growth and executed our strategic and product innovation roadmap. We have implemented the best-in-class technology across our platform and the investment we have made in digital pathology and AI are paying off. We are seeing the advantage of moving to digital and using AI-enabled workflow with increased quality, turnaround time, and throughput. We have launched our own proprietary imaging management system EZOPAS, which integrates the best-in-class AI tools developed in house, giving us even greater control of the technology services. We also accelerated our product innovation in 2025 with the launch of RNA-integrated whole genome sequencing and ultra-rapid whole genome sequencing. The investment in AI and digital pathology solutions coupled with our innovations across our laboratory service platform, we believe, drove revenue and margin improvement in 2025. We see 2026 as a transition period as our business adjusts to the impact from our largest customer moving significant volume in house. We believe our technology platform will continue to get stronger, and the strategic investment and the innovations we have made will continue to work at an accelerated pace, offering new and expanded opportunity for growth and improved operating leverage in future. We also accelerated the progress of our therapeutic development pipeline in 2025 and expect continued progress this year. Starting with our first clinical candidate, FID-7 advanced through Phase 2 with 46 patients enrolled. The trial enrollment closed on time on 12/29/2025. We are encouraged by the early efficacy and safety data. FID-7 combined with cetuximab demonstrated meaningful anticancer efficacy and a favorable tolerable profile at both dose levels for…

We ended the fourth quarter at $83,300,000, an increase of 9% year over year and a slight decrease quarter over quarter. Looking at how we closed the year, total revenue came in at $322,700,000, which was an increase of approximately 14% year over year. Looking closer at our three areas of business, Precision Diagnostics for the fourth quarter was $48,200,000, an increase of 11% year over year; however, down 5% sequentially, driven primarily by lower-than-anticipated volume from our largest customer who has begun transitioning the testing in house. AP revenue for the fourth quarter was $27,000,000, an increase of 3% year over year and up 4% sequentially. For biopharma services, revenue was $8,100,000, an increase of 32% year over year and 10% sequentially. For the year, Precision Diagnostics revenue was $190,500,000, a 14% increase over 2024; AP revenue, or anatomic pathology revenue, was $106,400,000, an increase of 10% over 2024; and biopharma services was $25,800,000, a 58% increase. Overall, we are pleased with the performance in 2025, delivering double-digit year-over-year growth. During the quarter, we announced our intention to acquire Bako Diagnostics and StrataDx, pending regulatory approvals, for a total purchase price of $55,500,000. This proposed acquisition will add new anatomic pathology services, proprietary PCR tests, and a national client base. Bako Diagnostics is a premier national provider of specialty laboratory testing services which offers a comprehensive testing menu, including complete anatomic pathology services, proprietary molecular genetic testing, and peripheral neuropathy immunohistochemical testing. Bako Diagnostics is CLIA certified, CAP accredited, and licensed by the Georgia Department of Public Health. StrataDx is a premier national provider of dermatopathology testing services. StrataDx is CLIA certified, CAP accredited, and licensed by the state of Massachusetts. With these acquisitions, we will further strengthen our laboratory services business by adding new products and services and…

Thank you, Brandon. Full year revenue for 2025 totaled $322,700,000, growing approximately 14% compared to revenue of $183,500,000 in 2024, which fell slightly short of the updated guidance we provided on last quarter's earnings call but ahead of the original guidance we provided at the start of 2025. Revenue in Q4 2025 totaled $83,300,000 compared to $84,100,000 in Q3 2025. The decrease in our Q4 revenue was primarily the result of lower-than-anticipated volume from our largest customer who has begun transitioning the test in house. Gross margin for the fourth quarter on a non-GAAP basis was 41% and on a GAAP basis was 39.1%. Full year gross margins improved year over year due to streamlined operations and from the enhanced efficiencies we achieved as a result of our investment in scaling and centralizing lab operations. Now turning over to operating expenses. Total GAAP operating expenses were $68,800,000 in the fourth quarter, which increased when compared to $50,900,000 in the prior quarter. The increase in operating expenses was partially driven by acquisition-related costs, payroll-related expenses, and a one-time professional liability expense. Non-GAAP operating expenses totaled $43,100,000 compared to $40,700,000 in the previous quarter. We remain committed to R&D spending to support both our laboratory testing services and our clinical studies and to sales and marketing spending to expand the sales team. Non-GAAP operating margin decreased sequentially to minus 10.7%. Our GAAP loss in the current quarter was $23,400,000, an increase from the prior quarter GAAP loss of $6,600,000. Adjusted EBITDA for the fourth quarter was a loss of approximately $4,500,000 compared to a gain of $700,000 in Q3 2025. On a non-GAAP basis, and excluding equity-based compensation expense, intangible asset amortization, acquisition-related costs, and a one-time professional liability expense, income for the quarter was approximately $5,200,000, or $0.16 per share based…

Thank you. And for participants using speaker equipment, it may be necessary to pick up your handset. We will now open for questions. Our first question is from Lu Li with UBS. Please proceed.

Great. Thank you for taking my question. I think the first question on your largest customer. So if I am doing my math correctly, I think the revenue loss for that customer is about 70% for 2026. I am just wondering if you can confirm the math and then also how conservative is this, like any risk that they can come back in house more.

Yes. Thank you for that question. I will take through the numbers, then I will turn it over to Brandon who can give further color into the dynamics regarding this customer. So, you are correct. The revenue from our largest customer was $70,800,000 in 2025. And when we lay out the plan for 2026, the $350,000,000, we assume that we are going to be getting about $11,800,000 from this customer. So $70.8 minus $11.8 is $59,000,000. So the impact of the loss of this customer was a decrease of $59,000,000 to our business, and then you add to that the impact of the Bako acquisition which should provide approximately $50,000,000 to $55,000,000 of revenues for the year. So for 2025, we achieved $322,000,000 of revenues, and in 2026, we are guiding to $350,000,000. So that minus $59,000,000 plus the partial or almost all offset from the Bako still provides a nice organic growth for our business, including Precision Diagnostics. I will turn it over to Brandon who can comment on this customer taking this testing in house.

Yes, Lu, thank you for the question. I think Paul did a good job there describing the impact. I think in terms of what we have modeled for 2026, we have pretty good visibility into that. So we think that is a number that we can live with and that our customer has committed to. There are some contractual arrangements that still need to be met for the year. So, again, we have pretty good visibility into that number.

Got it. And then just a follow-on to that. So you talked about there are some ways to mitigate by growing your customer pipeline. Just wondering, can you give a little bit more color in terms of how you can kind of grow your own brand diagnostic? And then related to that, the other companies' assays? Can you also size how much of your business right now is actually running?

Yes. I mean, certainly, I can talk about some of the drivers. Panel out there now with over 1,000 genes, we continue to improve our connectivity with EMRs, so we still see a lot of momentum that would otherwise be missed in the absence of having that RNA data. We have expanded the sales team some in 2025. We continue to do so in 2026. And we think we are going to continue to gain market share for whole genome sequencing with RISE, our RNA-integrated sequencing evaluation, looking on a sort of a month to month as well. As we have mentioned, we have MolDX approval for our somatic assay, which we branded Lumira. And we are starting now to incorporate our somatic testing into our pathology business and learning and operationalizing how to leverage our somatic testing with our AP business. Our somatic test, great coverage, great turnaround time. It has all the right genes. So we think we are going to see some pretty significant improvement in our somatic oncology volume in 2026. And another area, you sort of see just genetics taking a bigger role in health care. You are seeing ASCO announced that patients that are going through certain chemo need to be treated with DPYD testing. Well, that is a gene that we offer. That is a service we provide. And that seems to be something that is going to drive some demand in 2026. So we see several different drivers for Precision Diagnostics, and we think we are going to deliver a pretty nice growth year.

Lu, this is Paul. As Brandon mentioned, the richness and the diversity of the offering, we feel more excited than ever for 2026. The incorporation of technology into our businesses, combined with the additional scale we are going to be getting particularly in the second half of the year with the incorporation of Bako. And what does that mean in terms of percentages and numbers? Well, to take an example, the gross margins, you know, with the impact of this large customer, yes, we are anticipating gross margins to be slightly lower in Q1 2026, but as we end the year, particularly in 2026, our forecasted gross margins should be pretty consistent with the record levels that we have achieved in 2025.

So, Lu, as both Paul and Brandon mentioned, we do need to take the lessons for losing this customer. We still have a reasonable relationship with the customer, and they still order other tests from us. But in addition, we have been accelerating the internal R&D development. We will introduce new products, and new techs will be the differentiator for the market, so we are feeling pretty strong at the present time. Given the technology and R&D effort we have, we do believe we will recover from this loss.

Great. That is very helpful. Final question from me. I am just wondering what will be your kind of capital allocation strategy. I think in the prepared remarks, you kind of framed like you could have some potential M&A. So just wondering what kind of areas that you are planning to target after your acquisition of Bako and StrataDx? Are you going to do more in Precision Diagnostics? And then how does that balance with your organic investment that you just mentioned? Thank you.

Yes. I think, Lu, it would be an area of AI. We have a lot of capability internal. We also would be looking for the synergies we may have in the field for the companies who just provide us the AI-enabled discoveries.

Our next question is from David Westenberg with Piper Sandler. Please proceed.

Hi. Thanks for taking the question. And I am just going to actually expand on some of Lu's questions. Can you confirm I think you actually said that this could be a gross margin headwind, the loss of the customer. And, I believe, secondly, you did do a ton, I thought, of carrier screening for this customer. And you have Beacon, which is a great product on your own. I just want to see if there would have been any loss of cost synergies associated with running that plus your own carrier screening project. And then I just wanted to follow on. I think there was a question about, like, if there is a second Compass customer that is anywhere the size of this, like, still outstanding, just kind of think about. And then I have a couple questions unrelated. Thank you.

Gross margin headwinds. Paul, do you want to take that?

Yes, I will take the gross margin headwinds. In addition to the revenues we anticipate for the first half of the year compared to the second half, of the $350,000,000, we anticipate in the first half of the year revenues would be approximately $158,000,000 to $159,000,000. The second half of the year, we anticipate revenues to be approximately $191,000,000 to $192,000,000. And the reason why it is back-end loaded is because in the second half of the year, we anticipate increased momentum for our organic growth excluding this largest customer, combined with the fact that we are going to be getting the full impact of the Bako acquisition. The reason why it is lower in the first half of the year is because of the fast decline of the impact of the loss of this customer. And what that does to our gross margins is on a non-GAAP basis, we posted gross margins of approximately 41% in 2025. We anticipate that to go down by approximately four points in the first quarter, about two points in the second quarter, but have it rebound in the third and the fourth quarter, and the rebound being quite significant. We anticipate that the gross margins on a non-GAAP basis would be in excess of 41% in Q3 and then rising even higher than that in Q4. I will turn it over to Brandon who can address your other question.

Yes, David. Thanks for the question. No. We do not have another customer that would be greater than 10%. We do not.

Got it. Okay. No. Thanks, Paul. That was an incredibly good amount of transparency and detail there. So thanks so much. Just in terms of the acquisition of Bako, you kind of mentioned this sales synergies or additional sales reps that you might be taking on. Are there additional sales synergies to sell your existing products? And I think you have traditionally been, and correct me if I am wrong, a lot more oriented on selling to the overall institution more than kind of on a physician-physician, pathologist-pathologist basis. With this additional scale, do you have opportunity to diversify the way you are going after the sales approach?

Yes. Thanks for the question, David. You know, on the anatomic pathology side, it is more physician-level sales versus large system sales. That said, our AP team has been subscale. We know that team was not big enough, so this does get us somewhere between 20 and 30 new sales representatives. And the cross-selling synergies are absolutely there. We will be able to use our existing team to sell Bako products, and the Bako team to sell Fulgent Genetics, Inc. products. A lot of the call points are very similar. And at the end of the day, this gives us more boots on the street which is really what we need. I mean, there are a lot of call points for anatomic pathology, whether it is surgery centers, dermatologists, other types of practicing physicians. We have just been subscale there. So with the investments that we have made in AI, we have been able to tackle any capacity constraints which is always an issue in pathology, especially back when you were reading glass slides and microscopes. Capacity has always been an issue. The investments we have made in digital pathology and AI have allowed us to really expand that capacity. So we are really looking forward to having this much larger sales team, nearly double the size in 2026, and really setting them loose to go out there and sell.

Got it. Other than that, one last one on precision oncology here. How did Beacon carrier screening do in the quarter? I mean, should we view that as a continued area of strength, and do you see that as a continued area of strength in 2026? And thank you very much.

Yes, we do. I mean, Beacon has been doing very well for us. Some of the Beacon volume has been impacted by this large customer dropping off faster than we anticipated. But our organic Beacon volume and the pipeline for Beacon opportunities remains very strong. So it is still one of the most important tests within the company. But to the oncology side of things, what we are doing with Lumira post MolDX approval and getting our pricing and approvals there, and how we are going to begin to leverage that across our pathology division. We are often the laboratory that is making the initial diagnosis of cancer. I mean, that biopsy, whether it is a breast biopsy, colon biopsy, skin biopsy, that is coming to our laboratory. We are performing H&E staining. We are making a cancer diagnosis. Now we are going to try to take it to the next level where we are going to do NGS. We are going to profile that tumor, not just perform pathology, and we have been talking about bridging our divisions together for some time. I think 2026 is going to be the year that it actually happens, and we are going to be able to provide better cancer diagnosis, better care, and timelier care for these patients.

Our next question is from Andrew Cooper with Raymond James. Please proceed. We have just lost Andrew. Andrew, if you would still like to ask a question, please press. Okay. Here we go. Go ahead, Andrew. Your line is live.

Hey, everybody. Sorry, not sure what happened there. Appreciate the questions. Maybe first, a little bit of a numbers question here. So just thinking about the cash burn and cash dynamics you talk about, if my math is right, you are looking at sort of the core business ex CapEx, ex the acquisitions, and ex kind of the moving parts you have called out burning about $33,000,000 for the year. So just kind of curious is that math right? And how do we think about sort of the change here given that is a little bit bigger than we would have expected, I think, even with the customer loss just giving you net to a pretty similar revenue number overall.

Yes. I think your math is largely correct. And the reason why we are burning slightly more than we anticipated is because our operating expenses are going to be slightly to nominally higher as a result of the Bako acquisition. That is a fully functioning asset that we are very, very happy with in terms of what it would do to our product profile, our reach for the markets, as well as our overall capabilities. So our intention is to keep those businesses, to invest in those businesses because we anticipate additional growth and momentum to come from that as well as our overall business into 2027. But taking a step back and looking at our cash burn, we ended the year with approximately $800,000,000 if you include the receivables we are going to be getting from the IRS tax refund. And now we are forecasting our cash at the end of 2026 to be $185,000,000. But a huge chunk of that delta of $115,000,000 are costs and a cash outlay that is not associated with the laboratory services business. So for example, of the $115,000,000, at least $56,000,000 is going to be associated with the cash outlay that we have for the Bako acquisition. We have another $26,000,000 of outlay that is associated with the spend for our biotech asset, FID-007 and FID-022. We also have capital purchases of approximately $12,000,000, and the one-time professional liability settlement of $14,500,000. So if you take a step back, and even if you take into account the impact of the loss of this customer, our laboratory services business is going to be using cash, but not that much, which leaves a lot of cash for us to deploy for M&A and investment in our overall business as well as other opportunities that can serve the shareholders.

Okay. Helpful. And touching on something you touched on there at the start of that answer. The digital pathology piece, and I assume, I guess, that Bako and Strata are not maybe as far along as you are at basically 100% digital at this point. So what sort of additional kind of volume are those two or volume capacity capabilities are those two deals adding? And how much incremental volume will you be able to handle thanks to that digital pathology and AI capability without needing to add materially more pathologists that I know are expensive to add at this stage.

Yes. Thanks for the question, Andrew. I do not know that anyone is where we are when it comes to digital pathology. I think we are significantly ahead of the game here, especially developing our own in-house developed viewer and image management system. Really proud of our R&D team and how quickly we have accelerated our AI and digital pathology reach here. You are correct. Bako is not highly digital yet. But this stuff is quite portable. There are some protocols that we need to improve based on certain sample types and certain biopsies. But it is mostly portable. So we will do our best to bring them up to speed in terms of digital, in terms of using AI. It is a nice improvement in efficiency, ultimately leading to capacity. You are right. For a long time, often your bottleneck of capacity was hiring pathologists and getting enough in the office to read. Remote does two things. It makes them more efficient but also allows us to hire pathologists all across the country. We do not need to relocate these people to Dallas or Boston or now perhaps Alpharetta once we close the acquisition of Bako. So it really has changed the game in how we run our business, and we are going to hopefully be able to bring a lot to Bako to help them as well. And again, these sales teams, a lot of synergies exist within the sales teams. So now we have one that is roughly twice the size that can sell products for both Fulgent Genetics, Inc. and Bako.

Yes. Adding to Brandon's point, the digital pathology toolkit allows more efficiency, and it also helps us to reduce the errors. In addition, all these pathologists' work becomes strong data for us to continue to train the AI and make it even better. So we do see a lot of synergies between the acquisition, and also we do see the benefit of AI for how pathology works.

Okay, helpful. And maybe just one last one. With this large customer in housing, do you have an opportunity to maybe shrink whether it is physical footprint or at least kind of pull down the labor spend component of things given, call it, 20% of revenues, I assume a pretty big chunk of volumes are coming out of that Precision Diagnostics business? I know you want to grow the remaining piece, but just would love a sense for whether you are right sized for the business at this stage once they are out of the equation.

Yes. So for the 2026 plan, excluding Bako, the overall headcount for the organization we kept relatively flat. We have some nominal increases, particularly at the sales organization. And the reason why we did that instead of having it go deeper or considering cuts is because we view the impact of this customer as a one-time event. We fully believe in this market. We believe in our capabilities. And we will get back to growth. We believe a decent trajectory. So combined with the fact that when we take a look at our laboratory services business, as I mentioned, even with the impact of this customer, it is not consuming that much cash. So we like where our organization sits, and we look to return to accelerated growth here in the future.

Okay. I will stop there. Thank you.

Thank you, Andrew. There are no further questions. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Thank you.