Q1 2020 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Q4 2024 Genetics earnings Conference call. At this time all participants are on a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance turn the conference. Please press star zero on your test.
Telephone.
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When I like to have the copper service here hosts today mystical Bhatia with Investor Relations. Please go ahead.
Great. Thanks, Good afternoon, and welcome to the Fulgent Genetics first quarter 2020 financial results conference call on the call today, we have been Shea Chief Executive Officer, Paul Kim Chief Financial Officer, and bread and her she was chief commercial officer. The company's press release discussing its financial results is available any investor Relations section.
The company's website ultra genetics dot com.
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 your questions on today's call will contain forward looking statements. These forward looking statements represent management's estimates based on our 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 disks.
Right in the forward looking statements.
Company assumes no obligation to update any of the forward looking statement. It may make today to reflect actual results or changes in expectations listeners should not rely on any forward looking statements I was predictions of future events should listen to management's remarks today with the understanding that actual events, including the companys actual future results maybe material difference.
What is described in our 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-K for the full year 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 the United States are gap 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 superior.
To the Companys financial results prepared in accordance with GAAP.
Please see the company's press release discussing its financial results for the first quarter of 2020 more information, including the description of how the company calculate non-GAAP earnings and earnings per share. A reconciliation of these fashion must metrics chew and income income per share. The most directly comparable GAAP financial measures with that I'd now like to turn the call.
All over to make me.
Thank you Nicole good afternoon, and thank you for joining our call today.
It would be Scott our first quarter 2020 result.
I will review the highlights from our war fourth quarter.
400, all work to all worked chief commercial officer Brendan proteins.
Quite upbeat on our war go to market strategy.
And finally.
Paul will discuss our financial results and our war Albany.
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Well, we had a good start to the year.
The global for liquidation of the mobile broadband worth.
Hasn't had a meaningful impact on our business.
Both in terms of event a war core testing this thing.
As well as all our operation.
The typically.
You too.
Birdie decisive action we took.
To recalibrate, our work company to address the large market needed for testing solutions.
Hey.
Condemning.
As a we'd be called briefly our love earning call.
We were quickly.
To pivot our word resource.
To focus on the weapon tend to lunch.
Hosting solutions.
Coal with my team.
In the fourth quarter.
I will speak these dynamics in Peafiel moment.
By the first.
I work for what a quick update on our results for the fourth quarter.
Remedy what the inline with our expectations for the first quarter.
Between 44% year over year to $7.8 million.
Billboard pets.
Create some spokesperson year over year to one.
31163.
Alright, U.S.P. was 589 essentially flat with the what do we saw in Q4.
Ill call core pest increased 18% from Q4.
Non-GAAP gross margin in the fourth quarter was a 51%.
Up approximately 300 basis points from the first quarter last year.
And on approximately 80% to point sequentially.
The sequential decline in gross margin.
Well due to both packs makes.
Along.
With investment.
And extends it relates to roll all though our coal the 19 pets.
Adjusted EBITDA loss of wasn't buying foundries $6000 in the fourth quarter.
Before I agree.
Due to the impact of coal 19.
I want to spend a few minutes.
These watching what do we saw across our core business.
As you can you imagine.
We saw significant slowdown in Peshawar these activities beginning in March.
At the beginning to you.
Shelter in place.
Ladies.
And then 90 central testing for traditional genetic testing what puberty.
Decreased.
During the January and February.
Our oncology.
Problem.
And the pediatric business continued to drive the majority of the one we saw.
Our customer base continue to that were part as we add to more core customer and the saw growth across all second or could be.
Before experiencing a slowdown you mark.
[noise] as you all know the promo where has caused a significant disruption in.
Our everyday life.
Which has impacted businesses around the world in worse we.
I would like to put these costs. The word has an impact to our work isn't the operation.
As well as a whole we plan to capture shares in the market for coal Nike testing solutions to drive incremental revenue.
For from the operation standpoint.
I wouldn't that in Tampa CTM continue to operate.
And the problem with samples on the Street health and safety precaution.
Beautiful a work.
But all thing were squinting products for coal 19.
Yeah, the qualified as essential business and the California shelter increased Monday.
So we have been able to operate anomaly.
Resolve any disruption.
In fact, we expanded our lab capacity, even if the crisis in the west the in resources toward she will file CP certifications required to handle coal 19 test.
Because of this investment we are able to Oliver and in pet Coke Deane.
Reach.
Larvae appealing to our customers.
All said the light our employees have been operating.
Remotely.
Let me into the open on has an 80 basis with a minimum of disruption.
We are central to our employees both in the lab and at home who have continued to support our all places around the club you I'm just trying to pardon.
[noise] former products.
One of them standpoint.
Well I'll be working.
Oh number of Buprenorphine, Michigan seems the words would begin to spread in February.
Our goal has been to you up quick.
According to <unk>.
<unk> test.
<unk> dot are readily available and accessible to both health care providers and individuals to help alleviate the shortage, we haven't seen in testing capacities.
In the overall market.
Well, no and lunch the tool to seem good pets for cold 90.
While our pets is based on the RT PCR technology, which is most commonly approach for coal Nike.
Tests in the market to be.
Lunch with in early April this has all but the most rapid turnaround time, given they are more convenient parking opus two distinct good region with the coal 19th.
In March we also lunch.
Based on that next generation sequencing technology, which you use the more comprehensive.
Three and the contribution methods to detect a worse that's called coal 19.
Well the complexity of these ngs pets based on results.
Loan growth probably wrong pardon.
We'd be view.
This has can be used that I'd like to be though which can be used to buy research Institute.
We'll learn more about the nature of the word and potentially in that the loss of vaccine for treatment options.
In addition, the Ngs based test is not to be made by the need for region.
When she has to be difficult who sold due to the overwhelming market.
[music].
[noise]. He addition to those who have to we have lunch that for health care providers.
We also have been working on and at home test kits for coal 19, so our.
Consumer initiate the genetic testing proof part of the pool.
Picture to downtick.
Brendan more talk more about this woman Terry.
I'm aware were pretty easily alright, alright, PBT, who do you want to and the lunch. This test, yes, so short amount of the fun.
Given the resources required and the red its insights of our organization.
Over the years, we have a top a lot about our flexible technology platform and the whole to enable us to offer well the brought its do nothing.
Test menu.
In the market.
Our.
The PBT to deal with this patent for coal Nike is a testament to the fact that our technology is truly differentiated.
And the platform we have a field is an equal a pivot quickly to over a wide range of over testing solution with a minimum incremental overhead.
Paul will discuss the financial impact of coal Nike you more detailed.
Well the on high level. So you must have them that we made in this quarter.
The one up in test for coal 19.
Resulting in incremental.
Spending approximately $1 million.
In addition call.
Oh, our business, including the procurement office apart, what she's a steel in difficult.
So.
We are confident that we will see strongly 10 on this investment we shouldn't be beneficial to our business in long term.
[noise] well does the circumstances for running the cold banking, Oh, Unfortunately, and Oh were hard goes to those who have been impacted.
We believe our weren't response to the need to put the testing has demonstrated how fortune perform and technology for BP for instance from others in the market.
Well look ahead.
For the rest of this year well continue to focus on offering accessible testing solution for coal 19 <unk>.
Without losing focus on our core business opportunities, which you would hope will peak problem. That's continue to be without the long term either for genetic testing.
On the flip side, we also believe our kids machine.
We'll be greet for and the addressable market.
We'll be larger than before.
And then it is.
It's not like a pen the coal work to Brendan.
<unk> <unk>.
To provide an update on our work go to market initiative.
Encoding inside them, although demand, we're seeing for our coordinating pets.
Brendan.
Thanks Man.
Let me mention our Hearts go out to everyone, who has been impacted by the Koby 90 pandemic.
And we hope to all emerge from this stronger than we were before.
Well I can take a few minutes to discuss our core business.
And our new Cats, Recouping, 19, which are uniquely meeting the needs of various organization.
During the quarter, we may testing for our core business more accessible online ordering for our rare disease oncology and reproductive health clients.
Like adding these capabilities to our fully operational laboratory, we continue to deliver high quality results to customers with no negative impact on turnaround time.
Sequencing other service had a strong quarter. It continues to be a growth area for our company as we expand our reach with bio pharma in contract research organization.
During this difficult time, we remain committed to delivering the same high quality services, but our customers have come to expect from project.
Turning to cold It Nike has made mention we launched to test the cobot 19, Ngs and RT Pcr.
We have seen demand from hospital systems clinics large corporations and other health care providers preclinical testing via RT Pcr.
In addition, we're seeing interest for our next generation sequencing test as researchers turned to sequencing the genome of Sars.
It'll be too.
Many of these organizations are new clients, the folgers and its likely these newly formed relationships will expand to other services, we provide in the future.
Operationally, we have added an additional shift that our laboratory and are now fully operational seven days a week.
It's hard to increase our capacity for cobot 19 testing and we are now processing thousands of tests per day.
We continue to see a significant need for our services, but perhaps more importantly, we continue to receive outstanding feedback from our clients.
Our turnaround time on Cobot 19 test has averaged less than 24 hours, which had been critical to our success. As we have received feedback that many labs are taking two to three days due to deliver results with some while taking as long as five to seven days.
The custom portal, we built for Kobin 19 makes results accessible for health care providers across a variety of platforms and makes it easy for them to differentiate between detected not detected for indeterminate results.
This portal has also helped with the necessary reporting as mandated by local and state organization.
Health care providers have been extremely pleased with this new portal and our overall service.
One notable example of a new customer relationship stemming from our Koeppen 90 testing solutions is with a nationwide network of specialty care clinics. This customer is leveraging our cobot 19 testing solutions across its more than 2000 locations to screen patients who need to be seen at these clinics.
Other chronic care.
A rapid turnaround time and ease of our platform are the primary reason we won this business over others. We competed against.
Moving forward our commercial team continues to be focused on making our cold it might seem to us readily available to patients and we expect to see continued demand of the need for trusting associated with brief opening the country is likely to be elevated for some period of time.
In addition to 30 hospitals and clinics with our Koby 19 cost. We recently submitted an emergency use authorization to the FDA, where our at home cold in 19 times pitcher by full Jim.
As a reminder, pitcher genetics is our consumer initiated platform, which we launched the 2019.
D. Colby test kids will be offered to our picture genetics website, it would be available to individuals who screen eligible people online portal.
Individuals would receive results back within a matter of days.
We believe our at home tests can play a major role in fighting this virus.
Conducting the tough collection at home conserves valuable time N P. P E resources that conditions would otherwise required to perform these test on page.
The price for the service will include bi directional shipping and they tele health component.
Many patients will be able to follow this or their health insurance, which should reimburse for most of the cost of the test. According to the news you must be schedule for high throughput Cobot 19 testing.
We are any early stages of our go to market strategy for the service, but we intend to dedicate significant resources to let me consumers know this test is available.
Given the uncertainty around ft. A response, we cannot offer much more insight into the impact of this at home test at the moment, but we will communicate any notable updates as appropriate.
The process, we made as a company related to Cobot 19 has a considerable we also look forward to our non koby 19 business picking back up.
Locked down across the country slowly began to be lifted.
I'll now turn the call over to Paul to provide the details on our financial performance in the first quarter as well, let's provide an update on our outlook Paul.
Thank you Brandon first quarter revenues totaled 7.8 million, an increase of 44% compared to the first quarter of 2019 are you watch business remains the most significant driver of our momentum.
Revenue from the U.S. grew 56% year over year into first quarter, representing a 73% of revenues during the quarter as many indicated our business continue to diversify.
And we did not during this quarter or have a single customer comprising more than 10% of revenue.
Billable counts in the quarter totaled 13163.
Growing 75% organically over to one of last year, the vast amount of this volume what from our core business an unrelated to see it'll be 19, although we did start to see some of this volume kinda at the very last week on a quarter.
Subsequent to March 31st the Cobot volume has been tremendous.
Our S.P. into first quarter was $599 essentially flat what the fourth what the fourth quarter.
Cost per test.
For the quarter was $380 on a GAAP basis, and 291, excluding equity based compensation of 231000.
Our non-GAAP gross margin improved approximately 300 300 basis points year over year to 51%, but declined approximately eight percentage points sequentially. There were two primary reason for the increase in Cogs per test and lower gross margin does corridor first what the higher cost of procuring reagents and supply.
[noise] and catch related to the mix of tests, including specifically to feel be 19 path and the second was the increased personnel costs related to the expansion of our lab capabilities also to address the demand for steel be 19 offerings.
Now turning to operating expenses as Megan as Matt indicated we made significant investments and the development of task for CRB, 19, which amounted to approximately $1 million and total costs across all areas, including Cogs of our business.
As a result, we saw non-GAAP operating margin declined approximately 19 percentage points sequentially to negative 13%.
These incremental expenses were distributed across our cost of revenues R&D sales and marketing as well as DNA.
With us somewhat out portion size to R&D in Cogs.
Our GAAP operating expenses were 5.6 million for the first quarter up from 5.2 million in the fourth quarter non-GAAP operating expenses totaled 4.9 million up from 4.4 million last quarter. We believe that will feel strong ROI from the investments we made in our carpet 19 past offers.
Things almost immediately and we believe these investments are extremely beneficial to our business into longer term.
Adjusted EBITDA loss for the first quarter with 506000 compared to 712000 into first quarter 2019.
On a non-GAAP basis, and excluding equity based compensation expense loss for the quarter, what 749000 or three cents per share based on 21.6 million weighted average common shares outstanding.
Now turning over to the balance sheet, we remain very comfortable with our current cash and liquidity position. We ended the first quarter worth 70.6 million in cash.
And marketable securities with no debt.
As indicated in our press release, we generated cash flow from operations in a quarter of 1.4 million [noise].
Now moving onto our outlook.
[noise] given the uncertainty, we're seeing a broader market, including a slowdown in demand for our core testing business, coupled with the volatility associated with test volumes for cover 19, we feel that it is prudent to withdraw the full your 2020 outlook as we previously provided.
However, as it relates to the second quarter, we expect revenues to be flat to slightly down compared with the first quarter.
There are few variables were taking into account when evaluating our overall guidance, including our guidance for Q2.
Including how much revenue, we could generate from sales of our cobot 19 past balance what the weakness. We're currently seeing of the traditional genetic testing market.
While we have already seen very healthy demand for cobot 19 test offerings. It has only been about a month since our launch.
In addition pricing on these past that's lower than what we usually see from our core test offerings, causing a drag to our MSP, having all that said the volume as ramping exponentially and the reception to our tests have an overwhelming since our launch in April.
To keep up what the enormous volumes were hiring employees throughout all departments of our company [noise].
We're also maintaining positive gross margins on these tasks.
Which should expand further as we scale.
In sum.
It is too early to gauge what the incremental revenue contribution would be no. We're not in a position to be able to offer revenue guidance.
For full year 2020, given the very short history of these dynamics.
Overall, while the start to our year, what unlike anything we could have planned the opportunity for us is promising as we look to provide trusting solutions for carbon 19 amid these uncertain unprecedented times.
We feel that our technology platform and our differentiated approach the genetic testing combined with our strong capital structure and business discipline have positioned us well to sustain and grow our business.
We also believe that our capabilities I thought as an organization will be stronger now that we can address larger screening markets on top of genetic testing. Thank you again for joining our call. Today. Operator, you can open up you can open it up for questions.
[laughter].
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish certain is yourself from the Q. Please press the pound key.
Our first question comes with a lot of Aaron right with quite a credit Suisse. Please go ahead.
Great. Thanks can you speak to them nature and magnitude, it's where the volume dynamics that you were seemed particularly at the end of March for the core business had been non Kobe business.
Obviously some of the covert testing is helping to offset that I guess.
Try and kit to think about how we should think about any sort of recovery and started the magnitude is that trajectory over the course of marching intent into April. Thanks.
Sure.
Hi, or investment this is Paul.
I think but a lot of.
Uh Huh people have seen that for traditional laboratory testing, including genetic testing.
That the drop off from the traditional business related to the environment I feel the 19.
Anywhere from say.
25% to 30% down to 50% for some businesses.
I would say ours is on a wider side rather than scenario, if that's like 50%.
Okay. That's helpful. On how should we think about some of that volume coming back like how quickly can some of the volume realistically come back given the mix dynamics at your feet.
Sure random do you want to dress that one.
Yeah sure. He earned a brand in here. It's a great question, you know I see its difficult for us to answer that I mean, we're certainly seeing.
The country began to reopen we're seeing some of these stay at home orders be lifted.
So we expect there to be a backlog of patients that will need access to testing. So they drop off in volume doesn't mean less patients but need to be tufted you just need these patients didnt have access to testing.
So as the hospitals reopened for other than emergency care and critical surgeries, where people get access to their clinics into their physicians. We expect the patients that were not tested during this time will still need the types of products and services. We have the timing of that obviously, it's hard to predict and it depends on how fast.
We can open the country back up.
Certainly we think that there will be a bit of digestion on this backlog as time moves on.
Okay, Great and then on the specialty care clinics can you speak to how big that when it for you and did that relationship span the entire offering and our how can you expand sorted that relationship that sounds it sounds like a good when do you think.
Brendan do you want to drop that one.
Yeah sure things are Brendan again, yeah, absolutely a significant win for our company.
He was competitive.
We.
Won the business based on our turnaround time.
Our service our portal.
The things that make a difference when it comes to to the path.
Currently is exclusive to koby 19 Kathy.
But I think this relationship has a lot of potential to expand into other services Fulton provides.
Okay, Great and just one more you said revenue in the second quarter gonna be flat to slightly down does that seem like continuation of the trends, you're currently seen or any sort of improvement or.
And he doesn't include both your Kobe testing.
Capabilities and offering as well as.
The dynamics, you're seeing across a court casting market.
[music].
So Aaron this is Paul so the short answer is yes that include Oh.
Bob.
We also want to be prudent about guiding to any kind of a number because from I think you know where we're one of the few companies that are actually speaking about the same media quarter I think the difficulty for us and trying to gauge where Q2 might come in isn't the standing part of our genetic testing business we have.
We feel very good about that and there is a backlog has Brenda has mentioned I think yet nor is it related to our optimism and what we're saying in terms of demand and volumes.
Related to CRB 19, I think it's just a short period of time that we've had.
You know as we indicated we launched one path towards the second half of March the other one and on April nine.
So it's really been about a month, a little less than a month for the RT PCR tough since our launch.
On the and B. groh and the reception that where you've had just within three to four weeks has been overwhelming and it's been growing exponentially.
So you know trying to assess what the volatility in the trajectory would be.
Within a short period of time basket, we have been offering the C. O VIP tough it's difficult to try and project that into any kind of prudent guidance, even if we're talking about the second quarter.
Okay, Great. That's helpful. Thank you.
And your next question is from the line as Stephen <unk> hybrid Sandler. Please go ahead.
Hey, guys, having hey, Paul Brendan.
Okay.
I see.
Right.
Oh, great Oh, thanks for taking a thanks for taking the calling questions. One one follow on question, Aaron and then I'm going ask them kind of ours questions, but.
On the Q1, well run rate on volume tracking without kroner buyers impact.
Just trying to get sort of an estimate on.
Central backlog you guys have yeah. So if you take a look at the composition of $7.8 million that we achieved in the first quarter.
The vast majority or more than the vast majority you know I might even use the word virtually.
Our revenues came from the orders that we see in <unk> and back half of that December January and February we saw the drop off happen.
Starting in March and then it precipitated to go lower.
And then I'm, giving you a little bit more information. After he went lower its you know essentially leveled out com during the month April.
Okay. That's helpful.
So.
Okay.
That's helpful Oh.
Okay.
On the Corona virus side I know you guys have.
You know adoption rate is a pretty oh pretty substantial right now and you guys are hiring to meet that demand.
Maybe can you give us a little bit of color on your capacity.
Just covered 19 testing.
And also what is the split between the RT PCR version and Ngs version.
Hi, Steve This is I mean, I'll probably be a dress. The first part and then led the Brendan address the second part.
Oh.
In terms of the left because capacity.
Currently.
We are able to pro cents up to 5000 per day and that we're looking forward to expend to up.
A 10000 by the end of quarter is really depends on the demand from the market.
Currently you probably as you may know, there's a lot of shortages a in terms of.
But the collection kit Asian equipment.
The war balancing.
Those kind of the mens now and so we seem to.
Doug you mentioned cooking, we add even the capacity gradually but we do habit of could it be adding up to start the part b $10 per day.
And with our also running or a three ship.
To make sure we're having ship with the some of the our operations.
For some of the the personnel so.
They are liking in somewhat of traditional genetic though that the business.
We're come to our run the coal 19 routine business in the RT PCR and the Ngs.
In terms of Ngs really it is.
In terms of speed is a much much slower than the RT PCR and also it's a cost a lot more.
But the benefit of we have is formally dealing with the research institutions and a family there were much.
Looking forward to know more deeper have bought this worse.
I think it's a for in terms of the comparison, we almost we see bother you know tend to one racial introductions of pets.
But the for those tests that we see older positive all.
For some capacity is inconclusive, we have ngs administered forward, though the confirmation and also people a lot better understand halt us.
That's worse, you up or muted.
Brendan you want to cover some more.
Oh sure me I think you did a good job. There you know he was asking the question you know a vast majority of the clinical Turkey. We're doing is RT Pcr.
Mostly because the turnaround time as Mike mentioned, it's difficult to turn ngs around faster than two or three days.
And we believe this test adequately fight desires need to be delivered within 24 hours. So the majority of our clinical testing RT Pcr.
But we are seeing request and demand from organizations doing research they want to sequence. The genome. So we do see some request bargains, yes cuts as well ngs tests could absolutely be use other clinical tests going to just little bit slower, but should we ever have any supply chain issues or any disruption or we would be able to reflect CNG.
Yes as necessary.
Right right.
Maybe a follow up question, so it looks like and jesperson, it's more of our research use a use or academic institution academic labs, golfarb buffer vaccines therapies, yes strain identification mutation tracking.
Is that revenue going to be.
In the testing revenue or is that should we consider the more as the sequencing as a service business.
It'll still be and tough thing for everything that the entry I start we would we wouldn't label it as an Ngls past just like our.
Got you have passed for genetic testing.
Okay. Okay.
Okay got it and then my final comment 19 question. The at home test should we think about that it's just a home sampling device that gets sent back to you for for testing it's not a.
It's on a actually point of care device right.
Right and you want to pick up.
Yes, Stephen that's correct isn't at home collection. So we would mail the kids to the patients home. The C.D.C. has authorized now some more simple collection that patients can do themselves. So the mid turbinen nasal swab.
To self administer so the tough would be collected at the patients home or put in our our kids and then mail to full Jan you know laboratory processing will happen at full Gen. They would have results back within.
24 hours.
[noise] to address the Brendans Oh, the point of the last one Steven we are also evaluating you by repeating several different technologies, we should consensus at a home tests for the worst test self test.
As well as.
Uh huh.
Good I G.H. him cirrhotic pest.
Okay.
Okay.
Well thank you so much.
Thank you see.
How do we have no further questions at this time.
Your call back to you.
Great. Thanks for everyone for joining us on the call Tonight and feel free to reach out to see how many additional questions. Thanks.
Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and having wonderful day you may all disconnect.
[music].